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Interserve crisis grows as debt talks stumble

Interserve cleans the London Underground and manages the Ministry of Defence’s UK estate
Interserve cleans the London Underground and manages the Ministry of Defence’s UK estate

Interserve is struggling to put ­together a crucial debt refinancing deal after the collapse of Carillion spooked its lenders.

The troubled British outsourcer, which cleans the London Underground and manages the Ministry of Defence’s UK estate, is racing to raise fresh funding from a syndicate of eight banks by the end of March.

However, some of Interserve’s main creditors suffered big losses when ­Carillion went under. Write-downs on lending to Carillion stand at about £1bn across the banking industry, dampening the appetite to provide financial support for the troubled outsourcing sector.

Sources close to the talks say ­Interserve has been desperately ­unlucky – its rescue plan was presented to the banks the day after Carillion went into liquidation.

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Ministers will be alarmed by the ­latest developments. Interserve has been on the Government’s watch since Carillion went bust. However, the Cabinet Office has rejected suggestions that ­Interserve’s position is comparable.

The company employs around 80,000 staff worldwide, ­including 25,000 in the UK, providing cleaning, security, probation, healthcare and other vital services.

The uncertainty raises the prospect it will have to plug a funding gap via other sources. Bankers say it may be forced to turn to shareholders, though that could be difficult because its shares have sunk in value.

Or the company may try to raise ­additional capital privately, though again that could be challenging given its strained finances. Interserve’s banks include Barclays, Lloyds, RBS, Mitsubishi UFG, Sabadell and HSBC.

Of those, Lloyds lost £108m on ­Carillion, RBS took an £187m charge on the construction industry, Barclays ­reported a £127m impairment, and HSBC took a hit of several hundred million pounds.

Net debt at Interserve rose from £274m in 2016 to £513m at the end of 2017 and some analysts forecast it will reach £600m by the end of this year.

The company is hoping to persuade its main creditors to agree to provide new borrowings of between three and five years. The extent of ­Interserve’s problems emerged via a September profit warning.

The following month, the company warned on profits again and said it was in danger of breaching its financial covenants. Lenders agreed to provide £180m of additional short-term funding until the end of March.

Interserve’s shares have sunk more than 70pc in the last 12 months, leaving it with a market value of just £94.7m.

A spokesperson for Interserve said: “All parties remain fully engaged in the process to provide long term financing and a stable capital structure for Interserve. We are making good progress with, and are confident about the outcome of, these discussions.”