Service provider Interserve has applied to go into administration after shareholders voted to reject a debt-for-equity rescue deal that would have eliminated £485M of the company’s £631M debt.
The rejected debt-for-equity deal would have kept the company going, but left existing shareholders with just a 5% stake in the company, with Interserve issuing £485M in new shares to its debtors.
In the end, shareholders holding 59% of Interserve shares voted against the rescue deal. Following an emergency board meeting an Interserve spokesperson confirmed that the company intends to formally entrer administration.
In a statement an Interserve spokesperson said: “Following the announcement earlier today that the resolution to approve the deleveraging plan was not approved, the board of directors of Interserve announces that it intends to apply to the High Court in London for the Company to be placed into administration.
“This is part of an alternative transaction which, when implemented, will restore the group’s balance sheet. Interserve’s subsidiaries will remain solvent, providing continuity of service for its customers and suppliers. It is envisaged that, immediately following the administration order being made, Interserve’s business and assets will be sold to a newly incorporated company which will ultimately be controlled by the group’s existing lenders.
“Following completion of the sale of the group to the new company, the intention is for an alternative deleveraging transaction to be implemented. This will achieve substantially the same commercial principles as the deleveraging plan, including the release of approximately £815M in principal amount of secured debt owed to the group’s lenders and approximately £202M of contingent secured liabilities owed to the group’s bonding providers, the exchange of approximately £485M of existing debt facilities for ordinary shares in the new company and the provision of an £110M of additional liquidity to the group.
“In addition, the purchaser will assume approximately £3.42M of the company’s intragroup payables liabilities. However, under the alternative deleveraging transaction, shareholders of Interserve are not expected to receive any value for their shareholding.”
The company has also confirmed that its ordinary shares will be suspended from trading on the London Stock Exchange.
By entering into a “pre-pack” administration, the company will continue to trade and prevent disruption to the many public services it is contracted to provide.
Accounting firm EY is overseeing the administration, which will see the firm’s operations sold off to lenders.
A pre-pack administration allows a company to sell itself or assests without affecting operations. EY will take over running of the business and shareholders will completely lose their investments.
Before the vote, the company’s largest shareholder, Coltrane Asset Management refused to back the rescue plan, raising fears that the 28% stake they controlled would be enough to derail the plan and send the company into administration.
Coltrane had put forward its own rescue plan, to issue £110M of Interserve shares underwritten by Coltrane. Their plan was rejected by the Interserve board due to a “risk of uncertainty to shareholders”.
Reading-based Interserve, employs 75,000 people worldwide as well as 45,000 in the UK. Its management was hoping the debt-for-equity deal would help it avoid a Carillion-style collapse.
The company has run into trouble over delays to construction contracts. Its share price dropped to its lowest point in more than 30 years last November after the company received a claim from waste-to-product manufacturer Renewi which said Interserve had missed a deadline on an energy-from-waste plant in Derby.
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