Interserve PLC - Coltrane Sets Out Alternative Proposal

Interserve PLC - Coltrane Sets Out Alternative Proposal

PR Newswire

NEW YORK, March 4, 2019

NEW YORK, March 4, 2019 /PRNewswire/ -- Coltrane Asset Management ("Coltrane") has today written to the board of Interserve plc (the "Company") to propose updated terms for a financial restructuring of the Company following the company releases last week. The key feature of the Coltrane proposal is the issuing of at least £110m of new shares in the Company, to be offered to shareholders pro rata and underwritten by Coltrane (subject to receiving full financial information from the Company).

This new issue and the conversion of £435m of debt in the Company into equity at par would leave existing creditors owning 55%, with shareholders owning 37.5%, assuming a full take up.  It would also mean the Company having materially lower net leverage than the Company's updated proposal upon completion – initially 2.1x in the Coltrane proposal, versus 2.6x in the Company's. Taking account of the Company's own public financial projections, Coltrane anticipates that net debt would fall to around 1x by year end.

In addition, despite concerns the Company has tried to prevent shareholders from implementing a better proposal, and from holding a shareholders' meeting at which Coltrane has proposed that the majority of the board be removed in favour of new board members with extensive turnaround experience, Coltrane has offered to bridge any interim liquidity gap that stems from the Company's operating cash flow. This bridge would cure the primary trigger for the creditors' ability to force a default and insolvency of the Company.

Given that a better proposal for a greater number of stakeholders is now on the table the directors, in their capacity as fiduciaries to the Company, should halt cooperation with lenders on implementation of their plan. If the company is not able to make such a decision then this raises serious questions about the board's decisions leading to this point, and about the position of the lenders, including major UK banks. Throughout this process, the board has prioritised discussions with lenders rather than shareholders, limiting the company's options and reducing the scope for a solution that addresses the interests of all stakeholders.

The updated Coltrane proposal would also contemplate identical treatment for the pension fund and equal terms for the New Bonding Arrangements as under the Company's proposal. The additional cash on the balance sheet could also facilitate further collateral for bonding providers, and as the Company's liquidity requires.

As a result, the Coltrane proposal offers a materially superior outcome to the Company and all its critical stakeholders – namely its customers, bonding and guarantee providers, the pension fund, and the Government and other customers. It will also put the Company in the position it would have been had the Company approached Coltrane for a solution first.

The Coltrane proposal is based on information disclosed by the Company, most notably the deleveraging plan terms highlighted in the Company's press release of 27 February 2019, which provided only limited information, and itself was a revision of a previous plan the details of which were made public in early December and updated on 6 February.

The updated Coltrane proposal is intended to be delivered on a consensual basis, and is the only plan that can be. It is better for the Company and its key stakeholders, and has been developed by Coltrane and its advisors without any funding from the Company – despite the Company anticipating expenditure of c. £90m on its and its creditors' advisors to implement its proposal, which would leave the Company in a poorer financial condition.

The following page compares the differing impact of the two proposals.

Transaction Comparison




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