Interserve, the contractor attempting to head off a Carillion-style collapse, has agreed a rescue deal with its creditors.
The company, which employs 45,000 people in the UK and is heavily reliant on government contracts, said the deal would help it reduce its debts from more than £600m to £275m in return for new shares in the firm.
Interserve has a vast number of public sector contracts in areas such as school meals, hospital cleaning and probation services.
Debbie White, the firm’s chief executive, said the financing arrangements were a significant step forward in the firm’s plans to strengthen its balance sheet.
“The board believes that this agreement will secure a strong future for Interserve. This proposal has been achieved following a long period of intensive negotiation and has the support of our financial stakeholders and government,” she added.
Interserve plans to issue £480m of new shares, which will be swapped with its creditors for debt, and will amount to 97.5% of its entire share capital – leaving existing shareholders with virtually nothing.
Under the deal, the Reading-based company will keep its profitable building materials business, RMD Kwikform (RMDK), loading £350m on to its balance sheet. Interserve had previously considered a spin-off of RMDK to raise funds, but the Cabinet Office was not in favour of the plans, believing it would leave the rest of the company in too weak a position to win new government contracts.
The rescue deal depends on shareholder approval, which is not clear-cut.
Interserve revealed in a separate announcement that its largest shareholder, Coltrane Master Fund, is seeking to oust eight of the company’s directors, which amounts to the entire board with the exception of the chief executive. The hedge fund said it continued to support White.
Coltrane owns more than 15% of the company and has recommended that David Frauman and Stuart Ross be appointed as directors, and is calling for a general meeting on the resolutions.
“Interserve is consulting with its advisers and will update its shareholders with regard to the timing of the general meeting to consider the matters set out in the requisition notice in due course,” the company said.
Shares in Interserve fell initially after the announcements but later rose 10% to 14.5p. The company was worth as much as £1bn in 2014, but is now worth a little over £20m.
The agreement with lenders is the second rescue deal for the company in less than a year, after a refinancing was struck last March as it struggled to cope with its mountain of debt.