Interserve: Major government contractor seeks second rescue deal

A cleaner at Liverpool Street stationImage copyright
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Among the company’s contracts is for cleaning at Network Rail stations

One of the UK’s largest providers of public services has confirmed that it is seeking a rescue deal as it struggles with £500m of debt.

Interserve, which works in prisons, schools, hospitals and on the roads, said it was “making good progress” on a long-term recovery plan.

It said details of the plan, which it expected to announce early next year, were yet to be finalised,

However, it was likely that it would involve issuing new shares.

Workers at the Foreign Office and the NHS are among Interserve’s tens of thousands of UK employees.

The government has said it supports the company’s long-term recovery plan.

On Saturday, the Financial Times reported that the company was looking for a deal to refinance its debt which would mean lenders taking a significant loss, while public shareholders would be “virtually wiped out”.

Interserve’s statement, issued on Sunday, said it was in talks about a “deleveraging plan”, which it said would deliver “a strong balance sheet”.

Lenders resigned to write-offs

Simon Jack, business editor

Sources close to Interserve’s creditors have told the BBC they accept they may have to write off some of their loans to ensure the company’s survival.

Lenders described talks around the company’s future as “extremely fluid”.

They recognised inevitable comparisons to the situation that engulfed Carillion, but insist the company’s management still has lenders’ support.

The BBC also understands Interserve is expected to announce imminently it has secured new public service contracts.

The Labour party leadership – ideologically opposed to the role of private companies in the provision of public services – has insisted that no new government contracts should be awarded to the company while it is in a parlous financial position.

That position is widely considered within industry to be detrimental to the future of a company that employs 75,000 worldwide, 45.000 in the UK.

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“Although the form of the deleveraging plan remains to be finalised, it is likely to involve the conversion of a substantial proportion of the group’s external borrowings into new equity, an element of which may be sold to existing shareholders and potentially other investors,” the firm said.

“If implemented in this form, the deleveraging plan could result in material dilution for current Interserve shareholders.”

Interserve’s share price dropped to a 30-year low last month.

Despite lucrative contracts in the Middle East and its wide range of work in the UK, the company has continued to lose money since March, when it agreed an earlier rescue deal.

Its troubles have been blamed on cancellations and delays in its construction contracts as well as struggling waste-to-energy projects in Derby and Glasgow.

Interserve claims its prospects are improving, and says it will increase profits this year.

What does Interserve do?

From its origins in dredging and construction, the company has diversified into wide range of services, such as health care and catering, for clients in government and industry.

At King George Hospital in east London, for instance, Interserve has a £35 million contract for for cleaning, security, meals, waste management and maintenance.

Its infrastructure projects include improving the M5 Junction 6 near Bristol, refurbishing the Rotherham Interchange bus station in Yorkshire, and upgrading sewers and water pipes for Northumbrian Water.

But Interserve is also the largest provider of probation services in England and Wales, supervising about 40,000 “medium-low risk offenders” for the Ministry of Justice.

In a statement, Interserve said: “The fundamentals of the business are strong and the board is focused on ensuring Interserve has the right financial structure to support its future success.”

The company said its options included bringing “new capital into the business and progressing the disposal of non-core businesses “.

Interserve’s difficulties follow the collapse of Carillion in January 2018, which put thousands of jobs at risk and cost taxpayers £148m.

Following that, the government launched a pilot of “living wills” for contractors, so that critical services can be taken over in the event of a crisis. Interserve is one of five suppliers taking part.

A Cabinet Office spokesperson said: “We monitor the financial health of all of our strategic suppliers, including Interserve, and have regular discussions with the company’s management. The company successfully raised new debt facilities earlier this year, and we fully support them in their long term recovery plan.”

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