Car­il­lion bosses make last-ditch plea for res­cue

The Sunday Telegraph - Money & Business - - Front page - By Ben Mar­low and Tom Rees

BOSSES at Car­il­lion have ap­pealed for a state-backed res­cue, telling min­is­ters that its sur­vival rests on a bail-out of the firm’s most trou­bled con­tracts.

The cri­sis-hit con­struc­tion firm, one of the largest sup­pli­ers of ser­vices to the pub­lic sec­tor, has called on the gov­ern­ment to step in to re­duce the fi­nan­cial bur­den of a string of failed projects around the coun­try. It is un­der­stood that the cry for help cen­tres around three pub­lic pri­vate part­ner­ship (PPP) con­tracts in the UK.

Al­though the com­pany has re­fused to name the trio of bun­gled con­tracts, prob­lems with build­ing the £350m Mid­land Metropoli­tan Hos­pi­tal in Smeth­wick, ex­pen­sive de­lays con­struct­ing the £335m Royal Liver­pool Hos­pi­tal and a £550m stretch of the Aberdeen by­pass, top the list.

It has also asked White­hall to pledge to dra­mat­i­cally speed up fu­ture out­stand­ing pay­ments.

The Gov­ern­ment is no­to­ri­ously slow at set­tling bills with con­trac­tors, and fre­quent de­lays have ex­ac­er­bated Car­il­lion’s cash crunch.

It is the UK’S sec­ond-largest con­struc­tion com­pany, em­ploy­ing 43,000 peo­ple glob­ally. It over­sees some of the largest gov­ern­ment con­tracts in the coun­try, in par­tic­u­lar for the min­istries of jus­tice, trans­port and de­fence. It main­tains 50,000 homes for the Min­istry of De­fence, man­ages nearly 900 schools and is heav­ily in­volved in the high­ways and pris­ons.

The com­pany’s ad­vis­ers are at­tempt­ing to pull-off one of the most com­plex re­struc­tur­ing deals in re­cent mem­ory, as­sem­bling a coali­tion of banks, bond­hold­ers, sup­pli­ers, and other cred­i­tors. How­ever, gov­ern­ment in­ter­ven­tion is cru­cial.

“It’s about re­set­ting some of the big con­tracts and mak­ing them less loss­mak­ing,” a source close to the com­pany said. Without that sup­port, the chances of Car­il­lion’s banks agree­ing to a debt­for-eq­uity swap in re­turn for another round of emer­gency fund­ing is un­likely, it is un­der­stood.

Talks are ex­pected to con­tinue through the week­end but un­less a deal can be struck soon, the com­pany could be put into ad­min­is­tra­tion as soon as Mon­day, trig­ger­ing mas­sive losses for lenders, share­hold­ers, sup­pli­ers and pen­sion scheme mem­bers.

High-level gov­ern­ment meet­ings dis­cussing the Min­istry of De­fence and HS2 con­trac­tor’s fu­ture spilled over into the week­end and a 50-strong team from PWC has been drafted in to ad­vise on con­tin­gency plans in the event of the firm go­ing into ad­min­is­tra­tion.

Trade credit in­sur­ers, in­clud­ing Euler Her­mes, Tokio Ma­rine HCC and MGA Nexus, have stopped writ­ing new in­sur­ance cov­er­age pro­tect­ing the firm’s sup­pli­ers from losses in a col­lapse, ac­cord­ing to the In­sur­ance In­sider.

In the wake of three profit warn­ings in less than six months, Car­il­lion’s share price plum­meted 93pc in 2017 as soured con­tracts on pa­per-thin mar­gins came back to haunt the fim. Its shares hit an all-time low on Fri­day of

‘The Gov­ern­ment is slow at set­tling bills, and fre­quent de­lays have ex­ac­er­bated Car­il­lion’s cash crunch’

14.2p. Car­il­lion’s lenders put up £140m of new loans last Oc­to­ber but are re­luc­tant to in­crease their ex­po­sure fol­low­ing a se­ri­ous de­te­ri­o­ra­tion in the firm’s prospects. Car­il­lion is locked in a des­per­ate bid for sur­vival af­ter is­su­ing a profit warn­ing last year. It is also buck­ling un­der the weight of more than £1.5bn of debt and a gi­ant pen­sion deficit of nearly £600m.

The firm was thrown a life­line just be­fore Christ­mas when its lenders de­layed a test date for its fi­nan­cial covenants un­til April 30 but the sit­u­a­tion reached a crit­i­cal level on Wed­nes­day when a busi­ness plan pre­sented to banks was re­jected.

Sir Vince Cable, the Lib­eral Demo­crat leader, said that the Gov­ern­ment can­not bail out Car­il­lion as it would al­low the “pri­vate sec­tor to pri­va­tise prof­its” while the “Gov­ern­ment na­tion­alises the losses”, adding that the Gov­ern­ment should not have given the trou­bled out­sourcer con­tracts in the wake of a string of profit warn­ings.

He told BBC Break­fast: “The gov­ern­ment, and par­tic­u­larly the De­part­ment of Trans­port and Net­work Rail, have been hand­ing out to them very big con­tracts know­ing that they were frag­ile and there is a de­gree of reck­less­ness here with pub­lic money that we need to have prop­erly in­ves­ti­gated.”

The Gov­ern­ment should force the share­hold­ers and cred­i­tors to swal­low losses from a col­lapse and then bring con­tracts back into pub­lic hands to make sure they can be de­liv­ered, Mr Cable added.

Just a week af­ter its shock profit warn­ing in July, the gov­ern­ment named Car­il­lion as one of the win­ners of £6.6bn worth of con­tracts to de­liver part of the new HS2 rail line. Trans­port sec­re­tary Chris Grayling de­fended the gov­ern­ment’s de­ci­sion, say­ing that it had re­ceived “se­cure un­der­tak­ings” that the con­tracts would be de­liv­ered.

In Novem­ber fol­low­ing another profit warn­ing, the be­lea­guered firm bagged two con­tracts with Net­work Rail worth £320m.

Pre­dict­ing a huge share price col­lapse, hedge funds placed large bets against the trou­bled con­trac­tor by short­ing its shares with 16pc of Car­il­lion’s share still out on loan to short­sellers.

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