One of the UK’s largest government contractors, Interserve, has been sold out of administration after shareholders rejected a rescue deal for the company.
Interserve has 45,000 UK staff and 68,000 globally. The company cleans schools and hospitals, runs catering and probation services, and manages construction projects. The company has been struggling with debt recently, and on Friday investors voted against a rescue deal which would have seen their stake reduced to just five percent, with lenders being handed the lion’s share of the business.
Under the pre-arranged agreement, EY administrators Hunter Kelly and Alan Hudson were appointed joint administrators to Interserve Plc, which is the listed holding company for the Interserve Group. Having been appointed, the administrators moved the company’s assets immediately to a newly-created group - Montana 1 Limited – controlled by Interserve’s lenders.
Montana 1 will soon be renamed and trade as Interserve Group Ltd.
“Unfortunately, the (rescue) plan was not approved by the shareholders and as a result Interserve Plc was in default of its banking facilities and could not pay its debts as and when they fell due,” a statement from the administrators said. “The shareholders were aware that the likely outcome of their actions in voting down the deleveraging plan would be the insolvency of Interserve Plc.”
The transaction avoids a Carillion-style collapse and secures the company’s 68,000 jobs, although investors in Interserve have seen their shares wiped out in the restructuring.
The deal also enabled Montana 1 and the rest of the Interserve Group to access an additional £110m of liquidity, as well as implement the debt-for-equity swap to reduce the indebtedness of the group by some £480m.
“These actions avoided the significant loss to creditors that would have resulted from a collapse of the group,” the administrators’ statement added.
Administrator Hunter Kelly added: “Following the detailed contingency work we had carried out, it was clear that any period of uncertainty would have resulted in a collapse across the group. After the decision by shareholders to not support the deleveraging plan, we had to move fast to implement the contingency plan. Our evaluation of other options showed that there would have been greater loss to the creditors under the alternative options available.
“We therefore sold Interserve Plc’s business and substantially all of its assets to Montana 1 as that company has access to the required additional £110m of liquidity and could implement the debt for equity proposal. This will result in the new group having an overall leverage of approximately two times EBITDA and provide it with a much stronger balance sheet which should provide confidence to its customers to grant the Montana/Interserve group new work and for its suppliers to support it with normal credit terms.”