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US short-seller throws spanner into Interserve's rescue plans

Lenders have agreed to swap £480mln of debt into equity
Interserve
Existing shareholders will have just 2.5% of the company if the refinancing goes through

Beleaguered contractor Interserve PLC’s (LON:IRV) plans to restructure its debts are seemingly under threat from a US bear fund.

Shares in the contractor rose strongly this morning as its lenders agreed to a huge debt-for-equity swap that sees existing shareholders stake diluted to just 2.5%.

Coltrane Asset Management, however,  requisitioned an EGM and called for the removal of eight directors.

READ: Interserve agrees key terms of rescue deal as it tries to avoid same fate as Carillion

Interserve’s restructuring plans will see the group’s debts reduce to £275mln from over £600mln through the issue of £480mln of new shares via a debt-for-equity swap and placing and open offer.

Another £350mln of debt is being shunted into RMD Kwiform (RMDK), a profitable part of the business that is now staying with the company having at one point seemed destined to be handed to Interserve’s lenders.

Following the rescue, Interserve will emerge with £60mln of net cash excluding the debt going to RMDK and a loan facility of £75mln provided by its current lenders.

Debbie White, Interserve's chief executive, said the refinancing was critical to the group’s survival.

“Agreeing the key commercial terms of the Deleveraging Plan with our lenders, bonding providers and Pension Trustee is a significant step forward in our plans to strengthen the balance sheet.

“This proposal has been achieved following a long period of intensive negotiation and has the support of our financial stakeholders and Government.” 

Shareholders still have to approve the deal, which has been further complicated by the call for an EGM by Coltrane.

The fund has a stake greater than 5% in Interserve, which is sufficient to call the meeting.

It also wants to appoint two of its own nominees to the board but Debbie White is not one of those under threat and the fund manager says it supports her remaining in the CEO position.

The US fund was a significant short seller of Carillion before the contractor went bust at the start of 2018 and has numerous short positions open in other UK-listed businesses.

These include automation group Blue Prism, DFS Furniture, technology group IQE and Pets at Home.

Interserve shares jumped 10% to 14.5p.

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