Interserve Confirms Talks With Lenders on Deleveraging Plan

(Bloomberg) -- Interserve Plc, which builds and maintains structures for the British government, is in discussions with its bankers about ways to cut its debt after revenue declined in the U.K. construction unit.

It is working on a deleveraging plan that aims to cut its net debt to about 1.5 times earnings before interest, taxes, depreciation and amortization, the company said Sunday. Interserve may amend its current financing agreements, including the extension of the maturity dates and repayment of existing facilities, it said.

Interserve, whose shares had already declined more than 70 percent this year, plummeted as much as 73 percent Monday to 6.5 pence in its worst intraday fall ever. The shares were down 54 percent to 11.2 pence at 10:16 a.m. in London.

The Berkshire, England-based company said Nov. 23 that it expected year-end net debt of as much as 650 million pounds ($827 million). It installed a new management team at the end of 2017, and has pledged to cut as much as 50 million pounds in annual costs by 2020.

“Although the form of the deleveraging plan remains to be finalized, it is likely to involve the conversion of a substantial proportion of the group’s external borrowings into new equity, an element of which may be sold to existing shareholders and potentially other investors,” the company said. “If implemented in this form, the deleveraging plan could result in material dilution for current Interserve shareholders.”

Carillion Collapse

Interserve’s troubles come almost a year after the collapse of rival Carillion Plc, a government contractor whose liquidation left almost 3,000 people out of jobs and 30,000 suppliers and subcontractors with 2 billion pounds in unpaid bills. The debacle, one of the biggest corporate casualties in British history, raised questions about how public services were being outsourced and led to calls from the opposition Labour Party for facilities to be brought back in-house.

In an attempt to quell public anger on the issue, the U.K. government announced a package of reforms last month that include a requirement for outsourcing firms to create “living wills” -- plans to help with the dissolution of a company in the event of its collapse -- and a push to better consider the social and economic benefits of contracts before awarding them.

Shareholders will get to vote on the plan in early 2019. The company also said its businesses are operating in line with its expectations for the year that ends Dec. 31.

Emerald Investment Partners, a family office headed by Alan McIntosh, helped rescue the company in March when it bought bank loans and contributed to new credit lines worth about 290 million pounds.

Under the deal, debt maturities were extended to September 2021 and providers of the new credit lines received warrants giving them the right to buy new shares at 10 pence.

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