Contractor says 'business as usual'
Interserve heads to administration as rescue deal fails
Interserve was behind a plan to develop the Haymarket in Edinburgh. This scheme is now being redesigned
EY was tonight confirmed as administrator to outsourcer and construction firm Interserve after shareholders voted by 60% against its rescue plan.
The administration team will immediately sell the company for a nominal amount to the current lenders (a mixture of banks and bond holders) who will then own 100% of the new company.
Interserve said it does not expect the pre-pack administration to prompt changes to underlying contracts or any immediate job losses. However, unions are seeking assurances long term, and analysts are asking if the next step is a break up of the company.
It said that the administration and sale – after shareholders rejected a debt-for-equity proposal – is expected to be completed this evening, “ensuring that the business will continue to operate as normal for customers and suppliers”.
It added that the move “will provide the group with a strong financial position, allowing it to grow and develop the business, to deliver on its long-term strategy and protect the group’s employees (including the beneficiaries of the Group’s pension schemes).”
EY announced that Hunter Kelly and Alan Hudson were appointed joint administrators of the company that “has been suffering from much publicised issues from losses on certain legacy construction contracts, in particular in the Energy from Waste sector. It has also had difficulties collecting monies due in the Middle East as well as securing new work due to its heavily indebted balance sheet.”
The board had tried to resolve these issues at an Extraordinary General Meeting today to vote on a deleveraging plan which would have, if successful, provided the group with £110m of additional liquidity to both enable it to continue to trade and provide headroom.
In addition, the deleveraging plan would have seen a debt for equity swap that would have removed approximately £480m of debt off the balance sheet in exchange for £435m of equity. Unfortunately, the plan was not approved by the shareholders and as a result Interserve was in default of its banking facilities and could not pay its debts as and when they fell due.
“The shareholders were aware that the likely outcome of their actions in voting down the Deleveraging Plan would be the insolvency of Interserve,” said the EY statement.
Following the vote the business and substantially all of its assets were transferred to a specially formed company – Montana 1 – which will shortly be renamed and will trade as Interserve Group Limited.
The transaction has enabled Montana 1 and the rest of the Interserve Group to access the required additional £110m of liquidity, as well as implement the debt for equity swap and reduce the indebtedness of the group by some £480m. These actions avoided the significant loss to creditors that would have resulted from a collapse of the group and secured the jobs of some 68,000 employees worldwide.
EY added: “It is important to note that the rest of the Interserve Group is not in an insolvency process and is continuing to trade on a business as usual basis under the new holding company.”
Hunter Kelly commented: “Following the detailed contingency work we had carried out, it was clear that any period of uncertainty would have resulted in a collapse across the group. After the decision by shareholders to not support the Deleveraging Plan, we had to move fast to implement the contingency plan.
“Our evaluation of other options showed that there would have been greater loss to the creditors under the alternative options available.”
The new group will have an overall leverage of approximately two times EBITDA, providing it with a “much stronger balance sheet which should provide confidence to its customers to grant the Montana/Interserve group new work and for its suppliers to support it with normal credit terms,” he added.
Second outsourcing failure
It is the second outsourcing giant to collapse after Carillion fell into administration last January and has raised further questions over the involvement of private companies in public contracts.
The company is one of the UK’s largest public services providers with 45,000 employees. Its services include probation, cleaning and healthcare, and it is involved in construction projects.
Last year it sold its stake in the Haymarket development in Edinburgh, now owned by M&G Real estate. Its infrastructure projects include improving the M5 Junction 6 near Worcester, refurbishing the Rotherham Interchange bus station in Yorkshire, and upgrading sewers and water pipes for Northumbrian Water. It has a £35m contract for cleaning, security, meals, waste management and maintenance at King George Hospital in east London.
The Haymarket development in Edinburgh is being redesigned by its new owner in conjunction with QMile Group which was behind the Quartermile. The new scheme includes public space, reducing the earlier high density office and retail scheme.