Public outsourcing company Interserve has sought a rescue deal from the UK government to help it with roughly £500m worth of debt, as Interserve lenders eye writedowns on its debt to allow the company to survive and restructure.
Its finance costs had risen from £9.6m in H1 2017 to £31.1m in H1 2018, as lending facilities grew. Across 2017 its debts nearly doubled from £387.5m in H1 2017 to £614.3m in H1 2018.
According to reports in the BBC and the Financial Times, the businesses’ shares fell to give the business a value of £19m on Monday, after news of a possible debt-for-equity swap by its lenders broke in the Financial Times – the business was worth over £120m at the start of the year.
A debt for equity swap would give Interserve lenders control of the business but relieve private investors of any real control of the business.
According to the FT Lombard column, lenders are now more inclined to write down debts and let a highly leveraged, low margin cash-strapped business survive. This is a reaction to Carillion, when banks withdrew funding and the business failed, causing large losses. This is so Interserve can continue to receive government contracts, and this will reduce the banks’ overall losses.
The rescue deal is expected to arrive in the new year, and the FT said civil servants have noted that Interserve had moved from not being “comparable” to not being “similar” to Carillion.
The business is still in receipt of contracts from the government. In 2009, Interserve took a £200m contract to deliver facilities services for HSBC, including its headquarters in Canary Wharf.
Analysis – Carillion
It is not yet known how much, or if any, invoice finance facility exists, but Leasing Life understands it is likely, given the model of the business, and with a large number of SMEs working with Interserve.
A third of Carillion’s £1.5bn (€1.7bn) debt to banking partners was made up of “reverse factoring”, or supply chain finance facilities.
Among major institutes, RBS, Barclays, HSBC, Lloyds and Santander UK were owed around 60% of the construction’s company debt.
The £500m liability was accumulated under Carillion’s Early Payment Facility (EPF) programme, introduced by the company in 2013. Under the facility, Carillion’s banking partners would pay suppliers in the first instance, and then recover the capital from Carillion.
It is not yet known whether Interserve shares a similar facility but if it does, many SMEs will be cautious about the company’s future. Leasing Life has reached out to the company’s representatives for information on this point but had not received a response at the time of publishing.