By Rlljones, via Wikimedia Commons
Interserve is having a hard time to put together a crucial debt refinancing deal after the Carillion’s collapse spooked its lenders.
The troubled British outsourcer is responsible for cleaning the London Underground and managing the UK estate of the Ministry of Defence. It is scrambling to raise new funding from a syndicate of eight banks by the end of next month.
However, some of the main creditors of Interserve suffered massive losses when Carillion went under. The write-downs on lending to Carillion stand at approximately £1bn across the banking industry, discouraging the appetite to grant financial support for the troubled sector of outsourcing.
Some sources who are close to the discussions say that Interserve has been desperately unlucky as its rescue plan was presented to the banks a day after Carillion went into liquidation.
The ministers will be updated by the most recent developments. Interserve has been on the watch of the Government since Carillion went bust. However, the Cabinet Office has dismissed suggestions that the position of Interserve is comparable.
The company employs approximately 80,000 staff around the world, including 25,000 in the United Kingdom, providing security, cleaning, healthcare, probation, and other vital services.
The uncertainty heightens the prospect that it will have to fill a funding gap through other sources. Bankers say that it may be compelled to turn to shareholders, though that could be hard since its shares have declined in value.
Or the company may attempt to privately raise additional capital. However, that could also be difficult given the company’s strained finances. The banks of Interserve include Lloyds, Barclays, Mitsubishi UFG, RBS, HSBC and Sabadell.
Of those banks, Lloyds suffered a loss of £108m on Carillion, RBS also took a charge of £187m on the construction industry, Barclays reported an impairment of £127m, and HSBC loss several hundred million pounds.
The net debt at Interserve increased from £274m in 2016 to £513m at the end of last year, and analysts forecast that it will reach £600m by the end of 2018.
The company is aiming to persuade its main creditors to agree to offer new borrowings of between a period of three and five years. The extent of the problems of Interserve emerged through a profit warning last September.
The next month, the company again issued warning on profits and said that it was in danger of breaching the financial covenants of the firm. The lenders agreed to grant additional short-term funding amounting to £180m until the end of March.
The shares of Interserve have plunged by over 70 percent in the last 12 months, leaving the company with a market value of only £94.7m.
An Interserve spokesperson stated: “All parties remain fully engaged in the process to provide long-term financing and a stable capital structure for Interserve. We are making good progress with, and are confident about the outcome of, these discussions.”