LPC-UK banks bear the brunt of Carillion's collapse

By Sandrine Bradley

LONDON (Reuters) - Five UK banks are facing heavy losses on loans to Carillion, after irreconcilable differences between the company, its lenders and the government pushed the UK construction and services group into liquidation on Monday, sources said.

Royal Bank of Scotland (RBS), HSBC, Santander, Lloyds and Barclays are among the most heavily exposed after providing £140m of emergency loans in September 2017 and are also lenders on a £790m revolving credit facility.

Those two loans make up the bulk of Carillion Plc’s £1.6bn committed debt facilities, along with £350m of private placements, around £170m of convertible bonds, a £112m Schuldschein loan and £45m of bilateral loans.

“These (five) banks have massive exposure to Carillion. They face high provisions in the next quarter,” a restructuring adviser said.

Barclays has further exposure after providing one of two bilateral loans totalling £45m with Germany’s Helaba Bank. Barclays declined to comment.

Six banks, including RBS, HSBC, Santander and Lloyds, also provided another £350m of early prepayment facilities to Carillion’s operating company, a banking source said.

These facilities allowed the banks to pay suppliers directly and then gave Carillion 120 days to repay lenders.

“They (the banks) have now lost that money in all probability,” the banking source said.

Lloyds and HSBC declined to comment. RBS was not immediately available for comment.

At the time of its collapse, Carillion had used £100m of the £140m emergency loans that were put in place in September 2017 after July’s profit warning.

The facilities comprised a £40m senior secured revolving facility that matured on April 27 2018 which was fully drawn, and a £100m senior unsecured revolving facility, which was £60m drawn and had a maturity of January 1 2019.

Carillion's £790m revolving credit, which was signed in November 2015, was also fully drawn at the time of its collapse, several sources said.

DEADLOCKED TALKS

The five UK banks were in last-minute talks to give Carillion a further £100m-175m of short-term loans, two restructuring advisers said, to fund the company while a debt restructuring plan was finalised and implemented.

The short-term loans would have been refinanced by a £360m cash injection as part of a debt restructuring agreement that would have converted all of Carillion Plc's existing debt into equity, several sources said.

Carillion held a meeting with creditors on January 10 to discuss its business plan and said that it needed at least £360m to sustain its business going forward.

Lenders said, however, that they were unable to commit funding without government support in the form of money, guarantees or the government taking back some contracts.

“Lenders’ support was contingent on government support. If they had that support they would have lent further money – maybe not the entire £360m but some money,” a second restructuring adviser said.

RBS, Santander and Lloyds were not willing to extend further funding after the government refused that support last weekend, a second banking source said.

HSBC and Barclays were willing to give Carillion another week before Carillion’s board applied to the high court for liquidation on Monday, he added.

Although some lenders were aware that Carillion’s finances were not sustainable without government support as early as December, creditors were optimistic of getting a deal done.

Lenders were expecting to agree a debt restructuring in the first quarter, before a six-month debt waiver expired in April, which would be implemented in the second quarter.

“We were very hopeful to get a deal done, it is very disappointing,” a third restructuring adviser said.

(This story has been refiled to remove repeated word in penultimate paragraph)

(Editing by Tessa Walsh)