10.12.18
Major public services contractor seeking second rescue deal to avoid Carillion-style collapse
Interserve, one of the government’s largest outsourcing companies and provider of public services, has announced it is seeking a rescue deal as it struggles with £500m of debt and is trying to avoid a Carillion-style collapse.
The company, which employs 45,000 people in the UK in key services in prisons, schools and hospitals, is seeking to restructure its finances for the second time this year. On Monday, its shares lost more than 75% of their value, crashing to just 6p.
Interserve says it is “making good progress” on a long-term recovery plan, which the government has said it supports, and aims to wrap up the deal by early 2019.
The Financial Times reported that the company was looking for a deal to refinance its debt which would see lenders take a significant loss, but public shareholders would be “virtually wiped out.”
A rescue deal was agreed with banks in March, but pressure on Interserve has since increased as it said last month that its debts this year would rise to £625m-£650m.
The outsourcer, which has thousands of government contracts for cleaning hospitals and serving school meals, said its rescue plan is likely to involve the conversion of a large chunk of its debts into new equity.
The financial woes of Interserve mirror those faced by its former rival, Carillion, which collapsed in January.
The CEO of Interserve, Debbie White, said in a statement: “We are making good progress on our deleveraging plan which we expect to announce early in 2019. Our lenders are supportive of the deleveraging plan which will underpin the long-term future of Interserve.
“Our discussions with our lenders are a positive step in the process that was agreed as part of the April refinancing. The Cabinet Office has also expressed full support for the work we are doing to implement our long-term recovery plan.
“The fundamentals of our business remain strong. The deleveraging plan will give Interserve a strong long-term capital structure and provide a solid foundation on which to build the future success of the Group.”
The BBC reported that it understands that Interserve is expected to announce it has secured new public service contracts.
In response to the news of the talks, Labour has called for a temporary ban on Interserve bidding for public contracts, saying that “the government has once again dropped the ball on outsourcing and it’s the public who will suffer.”
“The government must take urgent steps to ensure all existing contracts with Interserve are reviewed and that they are prevented from bidding for public sector contracts until they have proved they are financially stable and there is no risk to the taxpayer.”
Image credit - Steve Parsons/PA Archive/PA Images