I think this deal is better than many feared and represents a reasonable vote of confidence in the directors. I see reasonable scope for upside once the news sinks in albeit this will remain a volatile share for some time.
Debt up to £834m and finance expense £56m pa........
Interesting restructure - main equity holders obviously would not go for a rights issue and debt holders did not want to just inject equity - they wanted to keep it on the IV drip in the hope that their debt could still come good
I would assume bits of the business will be sold off in the next year to try and repay the debt pile.
Refinancing apparently agreed, with 20% of company shares being given away at 10p, and some increase in funding costs:
"UPDATE ON REFINANCING
Interserve announces that discussions with lenders and other financial stakeholders have continued to progress well, with agreement in principle on major commercial terms now reached. These commercial terms remain subject to credit approval from all providers before the new facilities are finalised. In addition, the lenders have agreed to extend the covenant test deferral date and the maturities of the financing facilities agreed in December 2017 to 30 April 2018 to enable the successful execution of all documentation required for the refinancing.
The additional facilities comprise cash facilities of £196.6m plus bonding facilities of up to £95m. These new facilities will mature in September 2021. Existing debt and private placement loan notes will be amended to be co-terminous with the new facilities. Borrowings made under the incremental short-term facilities agreed in December 2017 and which now expire on 30 April 2018 (under which the Company has drawn £45m of the revolving credit facility) will be repaid out of the new facilities, once these are in place. In total, this means that the company will have cash borrowing facilities of £834m immediately following the refinancing completion and through to September 2021, subject to certain step-downs in the new facilities over the period.
Pricing on both the new facilities, and the existing debt and bonding facilities have been renegotiated as part of the refinancing. It is anticipated that the total interest expense in 2018 will be approximately £56m of which circa £34m will be cash interest. The increased cost of bonding instruments already issued will be circa £3.2m, of which the cash impact is less than £1m.
Additionally, as part of the proposed deal terms, the company anticipates that it will issue warrants to the providers of the new cash and bonding facilities to buy shares at 10 pence per share (the nominal price of each share). If exercised, this would provide the warrant holders with an interest of up to 20% of the post-issue share capital.
We have, as part of this process, engaged extensively with the Trustee of the Interserve section of the Interserve Pension Scheme with respect to the new refinanced structure and their security protection. This has been agreed with them, subject to the finalisation of the required documentation.
Debbie White, Interserve's Chief Executive, said:
"Today's announcement is a significant milestone for Interserve and a major step in securing a firm financial platform to underpin the Group's future. We are encouraged by the support from our lenders in respect of these new facilities, which will allow the new management team to execute our business plan, focused on delivering a great service for customers, driving growth and restoring value."
OWT, you say, do your own research. We I did a few months ago when I had this as a 'strong sell' at 99p. Now the shares trade at 57p. I am afraid this company has all the negative attributes as Carillion had and it must be odds on that it goes the same way.
This one looks a bit daffy ducked, too. I mean Jesus, how can you lose so much just doing a bit of cleaning? A market valuation of 91m GBP with debts forecasted at 600m, I wouldn´t fancy many peoples chances of success with this one.
I have a feeling there are many more of these type of companies out there.
Nigel Somerville on share Prophets blogs avoid.
He quotes Warren Buffet Two rules (1) Don't lose money ( 2 ) Don't forget rule one .
But i recall he bought Tesco a few years back so don't get how you do that ?
Like Carilion and capita, IRV i read ..... were / are paying out more in dividends then they generate from operations i do not understand how that's a good idea ?
"Interserve, the British outsourcing company, has presented a rescue plan to banks in an attempt to secure fresh funding, with fears over its future raised by the demise of rival contractor Carillion.
Interserve, which cleans the London Underground and manages the Ministry of Defences estate in the UK, has already warned on profits and delayed a test on its banking debt covenants until the end of March. It has secured £180m of additional short-term funding until then.
On Thursday, the company met with eight banks including Barclays, Lloyds Banking Group, RBS, MUFG, Sabadell and HSBC to present a revised business plan and request fresh funding for the company. The proposals are under consideration but no decision has yet been reached. Interserve declined to comment................."
31st March is our next sit down with the banks, that we know so until then we have a good few months for the CEO to be working her magic with identifying cost savings, reviewing the business and with implementing her "Fit for Growth" strategy.
In one sense its a shame that markets overreact and tar all with the same brush when they are all individual companies. Carillion collapses = stay the same. Capita warn - lets chop it 25%.
That said tarring all with the same brush presents opportunity and not only that it means future pricing contracts will increase.
Well when Carillion actually "collapsed" Interserve held its ground really and sat in the 115 to 123p range for a good few days and that's despite having had its own mark downs for its own problems already.
Then Capita completely different company came out with its own profit warning in the last few days and guess what "kick the can" Interserve gets hit more price reduction. Did it deserve it this time - probably not at all.
Whats more and at the time of writing Capita is up nearly 9.25% this morning.
Lets see if common sense prevails and we get back to where we were.
I am all for the concept that you must speculate to accumulate, but it is pointless speculating in what are essentially worthless companies. Interserve's latest Balance Sheet shows net assets of £347.2 million, but goodwill of £434.6 million. Excluding goodwill (that doesn't have a tangible value) it means that liabilities exceeds assets. On top of this net debt stood at (£390.9 million).
It always amuses me when investors are taken in by directors' positive statements; that is their job to talk their company up. So positive noises from Kier Group doesn't impress me as this is another negative company. Net assets excluding goodwill is negative at (£9 million and net debt stands at (£118.6 million). The last accounts showed a loss of (£21.4 million). These figures are not good, even if they are not as awful as some of their competitors, but the shares at over 1,000p are hopelessly over-valued.
IRV needs to get on with its RI. And they don't want to be shy either. Better to raise too much than too little, as then you are in a stronger position with the lenders, and buyers for parts of the business IRV want to exit.
This was the strategy RSA successfully followed a few years back when they were almost down and out.
The $350 million of private placement notes that were sold to US investors in 2014 are now changing hands at about 45 cents on the dollar. It is difficult to get a quotation on them because of their nature. However, holders are willing to sell at 45 cents on the dollar implying that is all they hope to get back. I guess in 2014 IRV was going great guns but in reality was borrowing too much and over reaching.
Debt restructuring is the key and equity holders can not expect note holders to lose half their investment without some pain from them also. Debs is going to paint a rosy picture because she needs the price over 100p ideally 120p to 140p for a rights issue. She needs them to think things are ok because that is the only way to get a RI off the ground. I think the banks will insist on it and she would already know this. But to raise a few hundred million will really hit existing share holders even at these levels. Otherwise it will be debt for equity. Shareholders need to be very careful at this point.
Ideally prefer the thought that there will be several pieces of good news in between times and it nearer 150p Then a deal struck with the banks on the covenants for a further "survival boost" Then an RI if that is required.
The credentials of the CEO are what is the convincer presently.
Regarding Kier shares soaring Joe Brent from Liberum suggests 'Clearly, the market is nervous following Carillion's liquidation last week. However, if there has to be another Carillion, and hopefully this does not happen every week, we would be much more concerned about Interserve, where the price placement notes are trading in the forties, the equity is dead without a rights issue, and a debt-for-equity swap is a real possibility.' This was posted on Citywire today.
My views are that to get a rights issue away the share price needs to stay above 100p. Maybe a two for one at 60p or something might cut it with the banks. They would want to see fresh capital raised by equity holders to share the risk and some assets sold to reduce debt. Trouble is the best bits would be sold off. They are in the driving seat as short term funding will soon need repaying/extending. Banks have their own share holders to worry about. Unless the new CEO has a few hundred million to lend IRV then the banks are really running things in a way. CEO's normally take money out of a company not put it in.This is not about Interserve so much as a company which I am sure will survive in some form as about how much equity holders will take a(further) hit.
· 2017 performance in-line with expectations outlined in October update
· 'Fit for Growth' programme expected to deliver £40m-£50m benefit by 2020
· 2018 operating profit expected to be ahead of current market expectations
· Constructive discussions with lenders over longer-term funding are progressing
Interserve ('the Group') provides the following update ahead of the announcement of its 2017 full year results.
Overall 2017 trading performance before exceptional items is consistent with the trends outlined in the October market update and in-line with market expectations.
As previously announced, testing of the Group's year-end covenant position has been deferred until 31st March 2018. The Group anticipates that net debt at year-end 2017 will be circa £513m, reflecting the significant outflow in the year relating to Energy from Waste, a normalisation of trading terms with our supply chain and exceptional costs. Whilst we anticipate that future cashflows from energy from waste will be broadly neutral, we expect net debt to peak in the first half of FY18 due to the phasing of cashflows relating to energy from waste costs which have already been provided, exceptional costs relating to restructuring actions and the current refinancing activity. Discussions with the Group's lenders are progressing and a further announcement with regards to its longer-term funding arrangements will be made in due course.
In order to establish a strong foundation from which the Group can move forward, the new management team has been engaged in a comprehensive review of the Group's contract portfolio and a thorough review of the Group's non-trading balance sheet items. This work is progressing well and the outcomes will be announced alongside a presentation of the Group's longer term strategy for value creation at the time of the Group's 2017 annual results presentation.
The Group is making good progress with 'Fit for Growth', the three-year programme launched by the new management team in October 2017. 'Fit for Growth' is focused on increasing the Group's organisational efficiency, improving Group-wide procurement processes and ensuring greater standardisation and simplification across the business. Management are confident that the cost savings and management actions identified will contribute at least £40-50m to Group operating profit by 2020, with the in-year impact in 2018 estimated to be £15m. As a result of the 'Fit for Growth' initiatives, the Group's operating profit for 2018 is now expected to be ahead of current market expectations. A full update on the programme will be provided as part of the 2017 annual results presentation.
Debbie White, Interserve's Chief Executive, said:
"The new management team, and the Board, have been working to stabilise the business and provide a sound foundation to continue to serve our customers effectively, underpin our future growth and to restore shareholder value. This work has focused on managing the balance sheet, conducting a thorough assessment of the contract portfolio, and introducing new management disciplines, processes and cost controls under the 'Fit for Growth' programme."
Computer program dealing today in small amounts and specifically late afternoon being allowed to manipulating things on very little volume. I a shame that markets are allowed to work like this. Buyers though were sensing a buy opportunity, probably against the 3 year chart.
And no real reason that I can see why, therefore presenting good value again.
Its March time for resolving the banking covenant situation. In the meantime the Board have made an encouraging start at drawing a line in the sand and with further review ongoing. Their credentials and achievements in the interim will be what counts.
I think provided they keep the turnaround going then they will get a vote of confidence off the banks, who it has to be said simply won't want another Carillion.
Although nothing straight lines, if the turnaround continues then the share price should reflect the progress.
My company is heavily involved with Interserve, to the tune of multiple £100K's. I am watching and reading every thing I can to get a view on what is the likely outcome.
Much to our surprise, in the last few months Interserve have been exemplary with their payments. I can only suggest that they know that at the slightest hint of trouble with payment, and the building sites will grind to a halt.
We were heavily involved with Carillion some 5 years ago but stopped working for them due to their appalling attitude to sub -contractors.
We received our final retention payment from Carillion mid last year, some 4 years after the work was completed, which is not unusual in the construction industry.
This is just a slightly less bad Carillion. They would have breached banking covenants but got additional short term funding to cover themselves - for now. The funding was short term and modest. A weak balance sheet and declining share price over 5 years says it all really.
Is there an upside? Well the Daily Telegraph states ' A report from professional services firm EY earlier this month found that support services and facilities management companies are unlikely to improve their profits next year as wage inflation and increased competition weigh on trading.'
That implies no material upside for 2018.
Is there a downside. Oh yes. Don't trust the Cabinet. There is a saying in political circles 'that when things get really bad, just lie.' They may not go the way of Carillion but some serious fund raising is needed and for any sort of placing or rights issue then confidence in the company is required. I can see the shares at 50p this year. Just remember profit warnings normally come in threes. Every share seems to have its cheerleader but this share is just too risky even at 122p. It might bounce to 140p on sentiment short term but that would be a time to get out for longs. Winning big contracts requires massive amounts of working capital upfront to start work and with a weak balance sheet I don't see IRV coping. Banks are getting edgy after what happened to Carillion. Actually I see this as a short.
But it would mean more research on how bad IRV are squeezing their subbies, how slow they are at paying suppliers due to cash constraints, more detailed analysis of their annual report, etc.
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