THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF EU REGULATION 596/2014.
NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE, DIRECTLY OR INDIRECTLY, IN OR INTO
THIS ANNOUNCEMENT IS AN ADVERTISEMENT FOR THE PURPOSES OF THE PROSPECTUS RULES OF THE FINANCIAL CONDUCT AUTHORITY AND DOES NOT CONSTITUTE A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT. NOTHING IN THIS ANNOUNCEMENT SHALL CONSTITUTE AN OFFERING TO SELL, OR A SOLICITATION OF AN OFFER TO SUBSCRIBE FOR OR TO ACQUIRE, SECURITIES IN ANY JURISDICTION, INCLUDING IN OR INTO
TERMS USED IN THIS ANNOUNCEMENT AND NOT DEFINED HEREIN HAVE THE MEANING GIVEN TO SUCH TERMS IN APPENDIX 3.
PLEASE SEE THE IMPORTANT NOTICE INCLUDED IN THIS ANNOUNCEMENT.
FOR IMMEDIATE RELEASE
27 February 2019
Interserve plc
Deleveraging Plan details and launch of fully underwritten placing and open offer
Following its 6 February 2019 announcement, the Board is pleased to provide details of its proposed Deleveraging Plan, which has been agreed with all of Interserve's lenders, bonding providers and the Pension Trustee.
The key elements of the Deleveraging Plan are as follows:
Fully underwritten Placing and Open Offer
· Placing and Open Offer of New Ordinary Shares at
· 19 New Ordinary Shares for every 1 Existing Ordinary Share;
· The New Ordinary Shares will be provisionally placed with the Senior Cash Facility Lenders, subject to clawback in full to satisfy valid applications by Qualifying Shareholders under the Open Offer;
· Any cash proceeds from the Placing and Open Offer will be used to repay the Senior Cash Facilities;
· Any New Ordinary Shares issued to Senior Cash Facility Lenders pursuant to their underwriting obligations will be subscribed for in consideration for the release of debt under the Senior Cash Facilities;
· For every nine pounds worth of New Ordinary Shares that the Senior Cash Facility Lenders or their designated allottees subscribe for (calculated at the Issue Price), the amount of debt under the Senior Cash Facilities that will be released will be ten pounds, such that the Senior Cash Facility Lenders release a higher par value of debt than will be paid by Qualifying Shareholders who subscribe for New Ordinary Shares at the Issue Price pursuant to the Open Offer. For every nine pounds worth of New Ordinary Shares the Qualifying Shareholders subscribe for (calculated at the Issue Price), which proceeds will be used to repay the debt payable by the Company, one additional pound of debt payable by the Company will be released;
· The participations under the Senior Cash Facilities that will be exchanged for New Ordinary Shares or prepaid from the proceeds of the Placing and Open Offer will, in aggregate, be equal to approximately
· The New Ordinary Shares issued through the Placing and Open Offer will account for 95 per cent. of the ordinary share capital of Interserve as enlarged by the Placing and Open Offer (assuming that, other than the New Ordinary Shares, no further Ordinary Shares are issued by the Company between the release of this announcement and Admission);
Net debt position
· RMDK will be ring-fenced within the consolidated Group and, as part of the Deleveraging Plan,
· Net cash-pay leverage of the Group (excluding the RMDK non-cash pay debt instrument) will be reduced to less than 1x EBITDA and total net leverage (including the RMDK non-cash pay debt instrument) reduced to approximately 2x EBITDA;
New debt facilities
· The Lenders will provide an additional
· The Bonding Providers will provide additional bonding facilities to Interserve as required by Interserve's business plan.
Shareholder approval
The Placing and Open Offer and the implementation of the Deleveraging Plan are conditional on, among other things, the approval by the Company's shareholders at a general meeting that the Company has also announced today, which will take place at The Broadgate Suite, ETC Venues, 155 Bishopsgate, Liverpool Street,
Directors' intentions
Each of the Directors who is a Shareholder intends to vote in favour of the resolution to be proposed at the General Meeting.
The Directors do not intend to take up their respective entitlements to New Ordinary Shares under the terms of the Placing and Open Offer.
2018 Preliminary Statement of Results
The Company has also today separately released an announcement containing its preliminary full year results for the 12 months ended 31 December 2018.
Recommendation
The Board considers the Deleveraging Plan to be in the best interests of the Company and its Shareholders as a whole.
Accordingly, the Board unanimously recommends that shareholders vote in favour of the Resolution to be proposed at the General Meeting as they intend to do in respect of their own beneficial holdings of Ordinary Shares amounting to 809,073 Ordinary Shares and 0.54 per cent. of the total number of votes available to be cast at the General Meeting as at the Latest Practicable Date (assuming no further Ordinary Shares are issued by the Company prior to the General Meeting).
Debbie White, CEO of Interserve, said:
"The agreement of Deleveraging Plan terms with our lenders, bonding providers and Pension Trustee represents a significant milestone for Interserve. Implementation of the Deleveraging Plan is in the best interest of all our stakeholders. The plan provides new liquidity and creates a strong balance sheet, which, alongside our Fit-for-Growth programme, will provide us with a competitive financial structure to continue to improve the business and deliver on our long term strategy."
Circular and Prospectus
A Combined Prospectus and Circular (the "Combined Prospectus and Circular") setting out full details of the Placing and Open Offer and the Deleveraging Plan is expected to be published on the Company's website and posted to shareholders who have elected to receive hard copies of shareholder documentation later today.
An expected timetable of principal events is set out in Appendix 1.
Rothschild & Co is acting as Financial Adviser to Interserve.
Numis Securities Limited is acting as Sponsor.
The person responsible for making this announcement on behalf of Interserve is Andrew McDonald, General Counsel and Company Secretary.
For further information please contact:
Interserve
Jonathan Refoy +44 (0)7880 315877
Tulchan Communications (PR Adviser) +44 (0) 207 3534200
Martin Robinson
About Interserve
Interserve is one of the world's foremost support services and construction companies. Everything we do is shaped by our core values. We are a leader in innovative and sustainable outcomes for our clients and a great place to work for our people. We offer advice, design, construction, equipment, facilities management and frontline public services. We are headquartered in the UK and FTSE-listed. We have gross revenues of circa
For news follow @Interservenews
IMPORTANT NOTICE
The defined terms set out in Appendix 3 apply in this announcement.
This announcement has been issued by and is the sole responsibility of the Company. A copy of the Combined Prospectus and Circular when published will be available from the registered office of the Company and on the Company's website at www.interserve.com provided that the Combined Prospectus and Circular will not, subject to certain exceptions, be available (whether through the website or otherwise) to Shareholders in the United States or other Excluded Territories.
Neither the content of the Company's website nor any website accessible by hyperlinks on the Company's website is incorporated in, or forms part of, this announcement. The Combined Prospectus and Circular will give further details of the New Ordinary Shares being offered pursuant to the Placing and Open Offer. This announcement is not a prospectus but an advertisement and investors should not acquire any New Ordinary Shares referred to in this announcement except on the basis of the information contained in the Combined Prospectus and Circular. This announcement is for informational purposes only and does not purport to be complete. No reliance may be placed by any person for any purpose on the information contained in this announcement or its accuracy or completeness. The information in this announcement is subject to change.
Numis Securities Limited ("Numis"), which is authorised and regulated in the United Kingdom by the FCA, is acting exclusively for the Company and no one else in connection with the Combined Prospectus and Circular, Admission or any other matters referred to in this announcement and will not regard any other person as its client in connection with the Combined Prospectus and Circular, Admission or any other matters referred to in this announcement and will not be responsible for providing the protections afforded to its clients nor for giving advice in relation to the Combined Prospectus and Circular, Admission or any other matters or arrangements referred to in this announcement.
N. M. Rothschild & Sons Limited ("Rothschild & Co"), which is authorised and regulated in the UK by the FCA, is acting exclusively for the Company and no one else in connection with the Combined Prospectus and Circular, Admission or any other matters referred to in this announcement and will not regard any other person (whether or not a recipient of this announcement) as a client in relation to the Combined Prospectus and Circular, Admission or any other matters referred to in this announcement and will not be responsible for providing the protections afforded to its clients nor for giving advice in relation to the contents of this announcement, Admission or any other matter or arrangement referred to in this announcement.
Apart from the responsibilities and liabilities, if any, which may be imposed on Numis and/or Rothschild & Co by FSMA or the regulatory regime established thereunder or under the regulatory regime of any other jurisdiction where exclusion of liability under the relevant regulatory regime would be illegal, void or unenforceable, neither Numis nor Rothschild & Co nor any of their respective affiliates, directors, officers, employees or advisers, accept any responsibility whatsoever for the contents of this announcement, and no representation or warranty, express or implied, is made by Numis and/or Rothschild & Co in relation to the contents of this announcement, including its accuracy, completeness or verification or regarding the legality of any investment in the New Ordinary Shares by any person under the laws applicable to such person or for any other statement made or purported to be made by it, or on its behalf, in connection with the Company, the New Ordinary Shares or the Placing and Open Offer, and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or the future. To the fullest extent permissible Numis and Rothschild & Co accordingly disclaim all and any responsibility or liability whether arising in tort, contract or otherwise (save as referred to above) which they might otherwise have in respect of this announcement or any such statement.
This announcement is for information purposes only and is not intended to, and does not, constitute or form part of any offer or invitation to purchase or subscribe for, or any solicitation to purchase or subscribe for, the New Ordinary Shares in the United States, Australia, Canada, Japan, South Africa, and any other Excluded Territory or any other jurisdiction. The information contained in this announcement is not for release, publication or distribution, directly or indirectly, in or into the United States, Australia, Canada, Japan or South Africa and should not be distributed, forwarded to or transmitted in or into any jurisdiction where to do so might constitute a violation of the securities laws or regulations of such jurisdiction. There will be no public offer of the New Ordinary Shares in the United States, Australia, Canada, Japan, South Africa or any other Excluded Territory. The distribution of this announcement, any other offering or publicity material relating to the Placing and Open Offer and/or the Combined Prospectus and Circular and/or the transfer of New Ordinary Shares into jurisdictions other than the United Kingdom may be restricted by law or regulation, and, therefore, persons into whose possession this announcement and/or the Combined Prospectus and Circular comes should inform themselves about and observe any such restrictions. Any failure to comply with any such restrictions may constitute a violation of the securities laws of such jurisdiction. In particular, subject to certain exceptions, the information contained in this announcement and the Combined Prospectus and Circular should not be distributed, forwarded or transmitted in or into the United States, Australia, Canada, Japan, South Africa or any other Excluded Territory. Any failure to comply with these restrictions may constitute a violation of the securities laws or regulations of any such jurisdiction. The transfer of the New Ordinary Shares may also be so restricted by law or regulation.
The New Ordinary Shares, the Warrant Shares and the Open Offer Entitlements have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended (the "US Securities Act"), or under the securities laws of any state or other jurisdiction of the United States and, subject to certain exceptions, may not be offered, sold, resold, taken up, transferred, delivered or distributed, directly or indirectly, in, into or within the United States There will be no public offer of New Ordinary Shares, Warrant Shares or Open Offer Entitlements in the United States. The New Ordinary Shares made available pursuant to the Placing and Open Offer outside the United States are being offered and sold in offshore transactions in reliance on Regulation S.
The New Ordinary Shares, the Warrant Shares, the Open Offer Entitlements the Combined Prospectus and Circular, the Application Form and this announcement have not been recommended, approved or disapproved by the U.S. Securities and Exchange Commission, any state securities commission in the United States or any other US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the offering of the New Ordinary Shares, the Warrant Shares or the Open Offer Entitlements or the accuracy or adequacy of the Application Form, the Combined Prospectus and Circular or this announcement. Any representation to the contrary is a criminal offence in the United States.
This announcement does not constitute a recommendation concerning the Placing and Open Offer. The price and value of securities can go down as well as up. Past performance is not a guide to future performance. The contents of this announcement are not to be construed as legal, business, financial or tax advice. Each Shareholder or prospective investor should consult his, her or its own legal adviser, business adviser, financial adviser or tax adviser for legal, financial, business or tax advice.
This announcement contains or incorporates 'forward-looking statements' with respect to certain of the Group's plans and its current goals and expectations relating to its future financial condition, performance, results, strategic initiatives and objectives, including in relation to the Placing and Open Offer. Generally, words such as "may", "could", "will," "expect," "intend," "estimate," "anticipate," "aim," "outlook," "pro forma," "believe," "plan," "seek," "continue" or similar expressions identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause the Group's actual results of operations, financial condition or prospects to be materially different from any future results of operations, financial condition or prospects expressed or implied by such statements. Any statement included in this announcement other than a statement of historical fact may be a forward-looking statement (including, without limitation, statements regarding the Group's business strategy, management plans, objectives for future operations, and earning guidance). These forward-looking statements are based on numerous assumptions regarding the Group's present and future business strategies and the environment in which it expects to operate in the future. Important factors that could cause the Group's actual results, performance or achievements to differ materially from those in the contemplated or expressed forward-looking statements including, among other things, the risk factors set out in Appendix 2 to this announcement.
The list of risk factors in Appendix 2 is not exhaustive. There may be other risks, including risks of which the Group is unaware, that could adversely affect the Group's results or the accuracy of forward-looking statements in this announcement. Any forward-looking statements contained in this announcement apply only as at the date of this announcement and are not intended to give any assurance as to future results.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF EU REGULATION 596/2014.
NOT FOR PUBLICATION, DISTRIBUTION OR RELEASE, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN, SOUTH AFRICA OR ANY OTHER JURISDICTION IN WHICH THE PUBLICATION, DISTRIBUTION OR RELEASE WOULD BE UNLAWFUL.
THIS ANNOUNCEMENT IS AN ADVERTISEMENT FOR THE PURPOSES OF THE PROSPECTUS RULES OF THE FINANCIAL CONDUCT AUTHORITY AND DOES NOT CONSTITUTE A PROSPECTUS OR PROSPECTUS EQUIVALENT DOCUMENT. NOTHING IN THIS ANNOUNCEMENT SHALL CONSTITUTE AN OFFERING TO SELL, OR A SOLICITATION OF AN OFFER TO SUBSCRIBE FOR OR TO ACQUIRE, SECURITIES IN ANY JURISDICTION, INCLUDING IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA, JAPAN OR SOUTH AFRICA. ANY DECISION TO PURCHASE, SUBSCRIBE FOR, OTHERWISE ACQUIRE, SELL OR OTHERWISE DISPOSE OF ANY NEW SHARES MUST BE MADE ONLY ON THE BASIS OF THE INFORMATION CONTAINED IN AND INCORPORATED BY REFERENCE INTO A PROSPECTUS IN ITS FINAL FORM (THE "PROSPECTUS") THAT MAY BE PUBLISHED BY INTERSERVE PLC (THE "COMPANY" OR "INTERSERVE" AND TOGETHER WITH ITS SUBSIDIARIES, THE "GROUP") IN DUE COURSE IN CONNECTION WITH THE POSSIBLE OFFERING OF NEW ORDINARY SHARES IN THE CAPITAL OF THE COMPANY. A COPY OF ANY PROSPECTUS PUBLISHED BY THE COMPANY WILL, IF PUBLISHED, BE AVAILABLE FOR INSPECTION FROM THE COMPANY'S REGISTERED OFFICE AT INTERSERVE HOUSE, RUSCOMBE PARK, TWYFORD READING, BERKSHIRE, RG10 9JU AND ON THE COMPANY'S WEBSITE AT WWW.INTERSERVE.COM.
TERMS USED IN THIS ANNOUNCEMENT AND NOT DEFINED HEREIN HAVE THE MEANING GIVEN TO SUCH TERMS IN APPENDIX 3.
PLEASE SEE THE IMPORTANT NOTICE INCLUDED IN THIS ANNOUNCEMENT.
FOR IMMEDIATE RELEASE
27 February 2019
Interserve plc
Recommended proposals in relation to the Deleveraging Plan
1. Introduction
On 6 February 2019, Interserve announced a proposed deleveraging plan (the "Deleveraging Plan"), which the Directors believe will provide the Group with sufficient liquidity to service its short term cash obligations and, create a strong balance sheet and a fundamentally solid foundation from which the Company can improve its business and deliver on its long term strategy.
The Deleveraging Plan is a consensual restructuring of Interserve, which is urgently required to provide sufficient liquidity, cash and bonding facilities to allow the Group to service short term obligations, to avoid a default under the Existing Financing Arrangements and to secure a stable platform. Such a default, were it to occur, would be expected to have material adverse consequences for all stakeholders and, in particular, for existing Shareholders. Paragraph 11 below explains the potential implications of a default in so far as Shareholders are concerned, and why the Board considers that the Deleveraging Plan is in the best interests of Shareholders as a whole and should be supported by them.
The Deleveraging Plan includes a Placing and Open Offer of 2,844,678,822 New Ordinary Shares to raise gross proceeds (whether in cash or as release of debt) of approximately
Significant dilution, reduced free float, share price volatility, potential de-listing and Directors' Intentions
Following completion of the Placing and Open Offer, to the extent Qualifying Shareholders do not take up their right to subscribe for New Ordinary Shares pursuant to the Open Offer, the Senior Cash Facility Lenders will hold up to 95 per cent. of the ordinary share capital of Interserve as enlarged by the Placing and Open Offer. Following the completion of the Placing and Open Offer, there is likely to be a high degree of share price volatility and the share price may decline below the Issue Price. In addition, it is expected that the Company's free float will fall below 25 per cent. and the Company will need to formally apply to the FCA for a temporary modification of the requirement to maintain a free float of at least 25 per cent. Whilst the FCA has indicated that it would be minded to grant such a temporary modification to the Company for a period of twelve months from the date of completion of the Placing and Open Offer (even if there is no or a limited take up in the Open Offer), such modification will be subject to the Company being able to demonstrate that the market in the Ordinary Shares will operate properly and that there will be sufficient liquidity. Such matters are outside of the control of the Company and there can be no assurance that the Company will be able to satisfy those requirements.
If the Company were to be unable to satisfy the requirements imposed by the FCA, or to restore the free float within such period as the FCA may allow, it is possible that the Ordinary Shares would be suspended and/or that the Company would have to be de-listed, such that the Ordinary Shares would cease to trade on the London Stock Exchange. In these circumstances, Shareholders would lose the protection afforded by the Listing Rules and the liquidity and marketability of the Ordinary Shares would be significantly reduced, which could have a material adverse effect on the value of the Ordinary Shares.
Further, if there is no take-up or only a limited take-up by Qualifying Shareholders under the Open Offer, the Company believes that it is likely that one or more of the Lenders may requisition a Shareholders' meeting to vote on whether to cancel the Company's listing. Whilst all Shareholders would be entitled to vote on any such resolution, if more than 75 per cent of Shareholders voted in favour of such a resolution, the resolution would be passed and the Ordinary Shares would be de-listed. A cancellation of the Company's listing would mean that Shareholders would lose the protection afforded by the Listing Rules and the liquidity and marketability of the Ordinary Shares would be significantly reduced, which could have a material adverse effect on the value of the Ordinary Shares.
Whilst the Directors intend to vote in favour of the Resolution to be proposed at the General Meeting in respect of their beneficial holdings of Ordinary Shares, they do not intend to take up their respective entitlements to New Ordinary Shares.
2. Background to and reasons for the proposals
2.1 Background
Interserve is a leading support services, construction and equipment services company, offering added value services to public and private sector customers. Interserve operates predominantly in the UK and the Middle East and, in the year ended 31 December 2018, the Group generated consolidated revenue of
A significant portion of Interserve's operations consists of repeat business with existing clients, through medium or long term existing contracts or by new work with long standing customers. The Directors believe this illustrates Interserve's reputation for consistent and repeatable service delivery and is an endorsement of the skills and commitment of its employees and supply chain partners.
Interserve operates through three businesses:
· Support Services: Interserve's support services business focuses on the management and delivery of outsourced, operational activities including integrated facilities management, frontline services, justice and specialist healthcare, training, estate management and industrial services ("Support Services"). The customer base is comprised of both public and private sector organisations in the UK and overseas.
· Construction: The Group's construction business provides advice, design, construction and fit-out services for buildings and infrastructure ("Construction"). The focus is on forming long-term relationships, developing sector experience and delivering repeat business, predominately through framework agreements. In addition to the UK, Construction has a presence in the Middle East (UAE, Qatar and Oman), which is structured through longstanding joint venture partnerships.
· Equipment Services: The equipment services business of Interserve, which trades globally as RMD Kwikform ("RMDK"), designs, hires and sells formwork and falsework, shoring and safety solutions to the construction industry. It operates globally through a wholly owned branch network of over 70 branches, utilising agents in countries in which it does not have a permanent presence and utilising export teams as a stepping stone into new geographies. The key sectors that RMDK targets for business are: infrastructure, energy and utilities; industrial; commercial/institutional; and multi-story residential. Interserve executes this business through a mobile equipment fleet, which can be redeployed internationally depending on geographical demand.
2.2 Background to the Deleveraging Plan
The Directors believe that, in recent years, Interserve has not been able to take advantage of its leading market positions and service offerings due to constraints stemming from its over-levered capital structure. This has resulted in negative market sentiment towards Interserve, compounded by the failure of Carillion plc, which the Directors believe has adversely impacted Interserve's ability to win new business, and has restricted the flexibility of management to react to markets as they have developed. Against this adverse background, the Directors believe that, following the successful implementation of the Deleveraging Plan, the Group will have a fundamentally sound financial and operational foundation on which to build.
The root causes of Interserve's high debt level are (i) the financial impact of a series of poorly performing legacy contracts, in particular the Group's EfW projects and two significant onerous Support Services contracts and (ii) a recent acquisition strategy funded predominantly by debt which has created a degree of complexity and cost which has impacted overall performance. These factors have contributed to considerable cash drain from the Group. The Directors believe that a long term strategy is now in place to deliver sustainable growth and cash flow going forward by focusing on opportunities and markets where Interserve is best placed to win and deliver contracts successfully.
On 27 April 2018, Interserve announced that it had signed a refinancing (the "April 2018 Refinancing") with its lenders, bonding providers and the trustee of the Pension Scheme (the "Pension Trustee"). The April 2018 Refinancing provided for, among other things, new term loan facilities of
The April 2018 refinancing plan was based on a business plan (the "Bank Plan") presented to the Lenders in January 2018 and reflected the implementation of the strategy by the business. The Bank Plan was intended to incentivise the Group to delever the balance sheet to a more 'normal' level of net debt to EBITDA over a relatively short period. This was reflected in certain covenants in the Override Agreement including those relating to the paydown of debt pursuant to the disposal of the Haymarket investment joint venture, the requirement to achieve non-core business disposals and a limit on the forecast outturn related to EfW. In addition, there was a covenant to make a repayment by February 2019 of
During 2018, the business traded in-line with the Bank Plan in respect of underlying operating profitability. However, as highlighted in the Group's trading update announced on 23 November 2018, there were a number of items where the cash generation by the Group was worse than forecast and the Group increased net debt guidance for the full year by approximately
· incremental cash costs from EfW contracts;
· incremental exceptional costs on a number of Construction projects;
· delays in collecting receipts from certain Middle Eastern customers;
· a reduction in dividends from certain JV partners concerned with the Group's financial viability;
· an unwind in the construction business working capital as the division's revenue continued to decline, partly due to the Group's disciplined approach to pursuing work but also as the Group's financial position started to impact its ability to succeed in winning contracts; and
· higher than planned costs in completing the April 2018 refinancing.
In the November update, Interserve also announced that it was working with its advisers to look at all options to deliver the optimum capital structure for the business to support its long-term, sustainable development. The announcement also noted that this process included options to bring new capital into the business and to dispose of non-core businesses.
In addition, in the period following the completion of the April 2018 Refinancing, the Group was subjected to a significant amount of media attention in relation to its financial position, brought about partly by other high profile failures within the construction and outsourcing industry. This negative attention exacerbated some of the problems noted above in relation to the Group's ability to win new business as, although Interserve continued to win certain contracts, the impact of the Group's financial position began to impact its general ability to convert preferred bidder status to final contract. This impacted both UK Construction and Support Services. In addition, the cost of bonding the business, where required, also became significantly higher than market, impacting profitability of contracts where the Group is unable to price this cost into the contract. The Group's financial position also began to be impacted by its supply chain. Withdrawals of credit insurance over the Group, which began in 2017, worsened through 2018, and this, combined with press speculation and the liquidation of Carillion, forced the Group to trade with suppliers with significantly lower credit limits or in some instances on a cash in advance basis. This significantly weakened the working capital position of the Group.
Whilst the Group continued its focus on cash generation through 2018, focusing on collections and work-in progress reductions, the Group continued to experience supply chain pressures due to its financial position. Due to these issues, as at 31 December 2018, the Group's net debt was
Following the 23 November announcement, a detailed analysis of strategic options led Interserve to announce on 10 December 2018 that it was engaged in constructive discussions with its lenders regarding the agreement and implementation of a deleveraging plan that would deliver a strong balance sheet. This announcement also noted that, although the form of the deleveraging plan remained to be finalised, it was likely to involve the conversion of a substantial proportion of the Group's external borrowings into new shares in Interserve, an element of which may be sold to existing shareholders and potentially other investors, and that, if implemented in this form, the deleveraging plan could result in material dilution for Interserve's existing shareholders.
At this time, the Board determined that there was some risk to being able to achieve the February Repayment given the 2018 issues identified and the trajectory of the business given growing press speculation. Accordingly, the Board, in conjunction with its discussions around the need to achieve financial stability through a significant deleveraging, also identified the need to defer the February Repayment and to seek to inject new liquidity into the business to support the on-going transformation of the Group as well as enable it to conclude the EfW contracts.
The Group's discussions with its lenders continued through December and, on 21 December 2018, Interserve announced that it had conditionally agreed the key commercial principles on which the Deleveraging Plan was expected to be based. The announcement noted that these key commercial principles included a reduction in leverage to less than 1.5x net debt to EBITDA by the end of 2019 and a conversion of a sufficient amount of the Group's senior debt into new ordinary shares in Interserve in order for Interserve to achieve its target leverage. As with the announcement made on 10 December 2018, this announcement noted that it was anticipated that the issue of new ordinary shares in Interserve would result in material dilution for Interserve's existing shareholders and that it was intended that a portion of the new ordinary shares issued as part of the Deleveraging Plan would be offered to existing shareholders and, potentially, new investors through a public offering (although the implementation of the Deleveraging Plan would not be conditional upon a successful public offering).
Since 31 December 2018, the Group's indebtedness has increased, partly in line with expected seasonality, but also as a consequence of payments of approximately
2.3 The Stable Platform Agreement
Interserve agreed a range of measures (including amortisation relief) in order to create a period of stability until 30 April 2019 from which Interserve could finalise the terms of and implement its Deleveraging Plan. These stabilisation measures are contained in a separate letter agreement between Interserve, IGHL and Global Loan Agency Services Limited (in its capacity as the global agent under the Override Agreement (the "Global Agent")) (the "Stable Platform Agreement"). In summary, the Stable Platform Agreement provides for:
· the deferral of an amortisation payment due in relation to the Super Senior Term Loan Facility from 1 February 2019 to 30 April 2019;
· the temporary technical waivers of certain events of default under the Override Agreement to the extent necessary to allow Interserve to negotiate the terms of the Deleveraging Plan with its stakeholders;
· the temporary increase of the threshold for an event of default under the Override Agreement in relation to negative cumulative historic and forecast variance for the Group's EfW business; and
· the deferral of a milestone in relation to the announcement and presentation of Interserve's deleveraging strategy from 1 February 2019 to 30 April 2019.
In consideration for these waivers and deferrals, Interserve agreed to co-operate with the Lenders and the Bonding Providers to agree the Deleveraging Plan as soon as reasonably practicable, including by granting access and information rights to the Lenders' and the Bonding Providers' advisers, agreeing steps to improve cash collection and agreeing the terms of appointment of advisers by the Group.
The waivers and deferrals under the Stable Platform Agreement will automatically cease to be effective and be deemed to have been void from the point at which they were entered into if the Shareholders do not approve the Resolution. A certain majority of the Lenders and the Bonding Providers can also choose at any time to cancel the waivers and deferrals with immediate effect if Interserve fails to comply with the undertakings to co-operate with the Lenders and the Bonding Providers to agree the Deleveraging Plan as soon as reasonably practicable (as described in the paragraph above).
The Stable Platform Agreement was originally dated 21 December 2018 and became effective on 4 January 2019 following approval of its terms by the requisite majority of Lenders and the Bonding Providers under the Override Agreement.
2.4 Deleveraging Plan
On 6 February 2019, Interserve announced that it had reached agreement in principle in relation to the key terms of the Deleveraging Plan with the Bonding Providers, the Pension Trustee and the Lenders subject to credit approvals, final due diligence and documentation.
On 27 February 2019, Interserve entered into the Commitment Letters with each of the Lenders, the Bonding Providers and the Pension Trustee (the "Commitment Letters").
By signing the Commitment Letters, each party gave undertakings to support the Deleveraging Plan on the terms set out in a term sheet in respect of the Deleveraging Plan and substantially final versions of certain Restructuring Documents, which are attached to the Commitment Letters.
These undertakings include:
· obligations to enter into the Restructuring Documents;
· in the case of the Lenders, commitments to participate in the New Super Senior Facility and to underwrite the Open Offer by subscribing for New Ordinary Shares for the release of debt under the Senior Cash Facilities; and
· in the case of the Bonding Providers, commitments to participate in the New Super Senior Bonding Facilities.
The key elements of the Deleveraging Plan are as follows:
· RMDK will be ring-fenced within the consolidated Group and, as part of the Deleveraging Plan,
· the Lenders will provide an additional
· the Bonding Providers will provide additional bonding facilities to Interserve as required by Interserve's business plan;
· the New Ordinary Shares will be provisionally placed with the Senior Cash Facility Lenders subject to claw back in full by existing Interserve shareholders through the Placing and Open Offer;
· any New Ordinary Shares issued to Senior Cash Facility Lenders pursuant to their underwriting obligations under the Commitment Letters will be subscribed for in consideration for the release of debt under the Senior Cash Facilities;
· for every nine pounds worth of New Ordinary Shares that the Senior Cash Facility Lenders or their designated allottees subscribe for (calculated at the Issue Price), the amount of debt under the Senior Cash Facilities that will be released will be ten pounds, such that the Senior Cash Facility Lenders release a higher par value of debt than will be paid by Qualifying Shareholders who subscribe for New Ordinary Shares at the Issue Price pursuant to the Open Offer. For every nine pounds worth of New Ordinary Shares the Qualifying Shareholders subscribe for (calculated at the Issue Price), which proceeds will be used to repay the debt payable by the Company, one additional pound of debt payable by the Company will be released;
· the New Ordinary Shares issued through the Placing and Open Offer will account for (i) 95.0 per cent. of the ordinary share capital of Interserve as enlarged by the Placing and Open Offer assuming that, other than pursuant to the Placing and Open Offer, no further Ordinary Shares are issued by the Company between the release of this announcement and Admission and (ii) 94.1 per cent. of the ordinary share capital of Interserve as enlarged by the Placing and Open Offer assuming that other than pursuant to the Placing and Open Offer, no further Ordinary Shares are issued by the Company between the release of this announcement and Admission save for Warrant Shares (assuming the exercise of all outstanding Warrants) and assuming no adjustments are made consequent upon the Placing and Open Offer to the number of Warrant Shares; and
· any cash proceeds from the Placing and Open Offer will be used to repay or release the Senior Cash Facilities;
Following the successful implementation of the Deleveraging Plan, the Directors believe that Interserve will have:
· leading Support Services, Construction and Equipment Services companies, consisting of:
o a leading Support Services business in the UK and Middle East, with excellent positions in growing markets and strong cash flow and significant margin improvement potential;
o a robust Construction business, with a clear strategy to use Interserve's market position to focus on the most attractive and lower risk opportunities in construction, building fit-out and infrastructure services, predominantly in the UK; and
o a leading Equipment Services business, which solves complex engineering problems for its customers, through the application of world-class design and logistics capabilities, backed up by an extensive fleet of specialist equipment.
· a solid foundation from which to capitalise on potential future consolidation in Interserve's markets; and
· a clear strategy to deliver profitable, cash generative growth based on four key pillars:
o define and deliver a value proposition for customers, focused on growth in markets where Interserve is best placed to win business;
o standardise operational delivery, with increased self-delivery where appropriate, to increase efficiency and reduce operational risk;
o Continue to deliver the Fit-for-Growth programme, targeting
o develop a "one Interserve" culture and approach, creating a strong sense of ownership and openness to change and a compelling proposition to attract the best talent in the market.
The Directors believe that the Deleveraging Plan will provide Interserve with a strong foundation that will enable it to deliver on these objectives.
2.5 Coltrane Actions
On 5 February 2019, Interserve received a letter from Coltrane Master Fund, L.P., an affiliate of Coltrane Asset Management LLP ("Coltrane"), requisitioning a General Meeting of the Company's shareholders (the "Requisition Notice"). The Requisition Notice proposes resolutions that Glyn Barker, Mark Whiteling, Russell King, Anne Fahy, Nick Salmon, Gareth Edwards, Dougie Sutherland(who left the Board on 12 February 2019) and Nick Pollard be removed as directors of Interserve and that certain other directors be appointed as their replacements (the "Requisition Resolutions").Under the Companies Act, Interserve is required to call a general meeting of shareholders to vote on these ordinary resolutions. On 26 February 2019, Interserve posted a notice of general meeting to Shareholders convening a general meeting to consider the Requisition Resolutions on 26 March 2019 at 1.30 p.m..
The Board further announced on 22 February 2019 that it had received overnight an outline proposal from Coltrane pursuant to which, as a possible alternative to the Deleveraging Plan, the Company would issue
Coltrane's outline proposal is non-binding and is stated as being subject to due diligence and potential revision. Accordingly, there can be no certainty as to whether a binding proposal from Coltrane will be forthcoming, nor as to its terms. As such, it is not possible for the Board to support nor obtain the support of Interserve's lenders, bonding providers or Pension Trustee. Without that support, the Coltrane proposal is currently incapable of implementation, particularly in the light of the Company's short term liquidity requirements.
The Deleveraging Plan is the result of a long period of intensive negotiation to align stakeholders behind a plan to strengthen the balance sheet and secure a strong future for the Group. The Board has taken immediate steps to implement the Deleveraging Plan which will, subject to Shareholder approval, avoid an outcome in which there is no return to Shareholders, including Coltrane, and considerable disruption to the business.
The Deleveraging Plan is currently the only plan that is capable of implementation in order to provide sufficient liquidity, cash and bonding facilities to allow the Group to service short term obligations and secure a stable platform
2.6 Prospects and Trends
Interserve's future results are expected to be influenced by a number of significant trends and factors which are described below as they relate to the Group's businesses. Results will also be influenced by Interserve's ability to successfully implement the Deleveraging Plan, thereby providing it with sufficient liquidity and giving it a foundation for financial stability, as well as its group-wide strategy.
Support Services
Interserve expects that 2019 will be a transitional year for Support Services as it continues to focus on exiting non-core service segments and implementing the Group's cost and efficiency savings initiatives. Interserve believes that Support Service's performance in 2019 will be underpinned by these cost and efficiency savings as well as the impact of contract wins in 2018 and moderate new contract wins anticipated for 2019 (partially offset by further exits from non-core sectors and contracts), with further anticipated new contracts marking a turning point and driving a return to growth.
It is anticipated that several significant contracts will become available for tender or retender during the medium term and Interserve believes that the steps that it is currently taking and proposing to take will enable it to secure some of these new contracts. The Group may, however, be required to incur capital expenditure to support initial mobilisation of new contracts. In addition to market conditions that are expected to be challenging and a difficult competitive landscape, which may place pressure on margins, Interserve will also need to address any remaining customer concerns caused by recent negative press concerning its financial condition. Interserve also anticipates that there will be a normalisation of working capital and improvements in cash conversion, which is expected to help improve the Group's liquidity position.
Operationally, Interserve intends to continue to focus on profitability in contract bidding such as through a preference for total facilities manages contracts, which offer attractive margins, and turning around or exiting loss making contracts and businesses, such as its former high street retail, power and industrial access and hard services businesses. Controlling operating costs will continue to remain a priority for Interserve. During 2018, Support Services benefited from cost savings achieved by the Fit-for-Growth program and Interserve expects that these savings will continue during 2019, although any further reductions to the cost base are expected to be at a diminished level. These cost savings may be partially offset by any increases in the National Minimum Wage or by increased labour costs caused by a reduction in the labour pool due to Brexit. Interserve also believes that a de-risked contract mix will also help contribute to higher operating margins.
Construction
UK
Interserve expects that 2019 will also be a year of transition for its UK Construction business, particularly as, during the last 18 months, the Group's UK Construction business has faced severe challenges stemming from negative publicity surrounding the Group's financial condition and stability. This has tested the Group's relationships with both its clients and suppliers, resulting in a number of setbacks. These include clients' deferrals of projects, Interserve being replaced on contracts, minor contracts being cancelled, bonding facilities becoming more expensive and Interserve not being invited to bid or being disqualified from bidding on new contracts and contract renewals leading to a decrease in new work won in 2018. These factors have impacted a substantial portion of the Group's pipeline, which is expected to contribute to a decrease in UK Construction's revenue in 2019. Pressure has also been placed on the Group's relationship with its suppliers, as some have imposed tighter terms of business, including reducing credit lines, while others have refused to take orders from the Group. This has to some extent limited some of the supplier benefits the Group has been able to realise from its Fit-for-Growth strategy. UK Construction's performance in 2019 and beyond will largely be linked to Interserve's ability to repair its public image and, ultimately, its relationships with its key clients and suppliers, as well as successful implement of its strategy for UK Construction.
Interserve believes that relationships with its key business partners will gradually normalise following the implementation of the Deleveraging Plan, although there can be no assurances that this will occur to the extent or in the timeframe expected. As part of implementing its strategy for UK Construction, since mid-2017 the Group has been rebalancing its UK Construction business to undertake a greater proportion of what the Company believes to be lower risk projects while simultaneously reducing its exposure to its existing onerous contracts through completion of the necessary works. Interserve plans to continue to apply this strategy through selective bidding, robust contract governance and improved pricing discipline. Despite this, there is no guarantee that Interserve will be able to identify a sufficient number of opportunities for work that fits within these guidelines or that the Group will be able to bid competitively for this work. The tightened bidding criteria are expected to result in the Group being awarded with fewer new contracts, further contributing to an anticipated decrease in revenue for 2019. However, Interserve intends to target higher margin work, which may partially offset the anticipated decrease in volume.
The Group expects also to continue to experience the positive cost savings effects of its Fit-for-Growth strategy, which has resulted in, and is expected to contribute to further incremental improvements to, a smaller operational footprint with decreased employment overhead. While going forward the Group should benefit from its lower operating cost base as a result, this may create challenges to Interserve's ability to successfully deliver on its contracts or to realise procurement savings, as it may reduce the benefit of volume based supply chain incentives.
In addition, although Interserve believes that it has reduced the amount of loss making contracts it is exposed to, it intends to continue to seek to minimise risks relating to its remaining onerous contracts, such as the Berwick Street project in London. The Group expects that its UK Construction business 'performance in 2019 will be impacted by the conclusion of its onerous contacts, including its remaining EfW contracts and Interserve's ability to minimise the potential liabilities associated with them.
Interserve believes that, following the transitional issues it continues to expect to face in 2019, its ability to win work should then normalise with financial constraints removed. Growth is expected in the water and local authority roads markets, as well as airport related work and private rental sector projects.
International
Interserve expects that its International Construction business will continue to be impacted significantly by geopolitical factors during the coming years. Interserve anticipates decreased revenues from its joint ventures in Qatar in 2019 in particular, which are expected to be offset by an increase in revenues from its subsidiary undertakings in other locations.
Interserve's International Construction joint ventures operate in Qatar, the UAE and Oman. The ongoing blockade of Qatar by its neighbouring countries has resulted in a deferral of decisions on contracts, cancellations and delays of existing contracts, increased competition for the reduced number of contracts that come to tender and a general reduction in appetite for non-essential capital projects in Qatar. While Interserve anticipates that projects relating to the 2022 World Cup will somewhat offset this downturn, revenue is not expected to normalise in the short to medium term. Interserve expects cost increases generally due to local inflationary pressures in the Gulf region which, together with an increasingly competitive environment, is expected to place pressure on margins for its joint ventures in Qatar. Interserve's ability to successfully manage its Qatari joint ventures during the blockade, and its success in normalising the businesses if the blockade terminates, will be a key driver for international Construction's operational results in the coming years.
In contrast to its Qatari joint-ventures, two of the Group's key international subsidiaries, TOCO and Adyard, located in Oman and the UAE, respectively, are expected to record an increase in revenues in 2019. This reflects an anticipated growth in the pipeline of new work as one of Adyard's key clients is expected to open a backlog of projects that it had awarded but delayed in 2018, partially due to the implementation of new regulations requiring promoting the employment of UAE nationals and associated reorganisations. These works are expected to be commissioned in the near-term. TOCO is expected to record an increase in revenue due to key contract renewals in 2019. Margins may benefit from an anticipated upturn in the oil market as oil companies resume capex spending and replacement of aging assets. Interserve anticipates increased capex requirements for TOCO and Adyard to meet the anticipated increase in demand, which would address Interserve's own need to replace aging assets and remedy under-investment in recent years. Despite this, these operations are expected to remain sensitive to geopolitical developments in the region as well as oil price levels. Any escalation in the conflict between Saudi Arabia and Yemen, for example, may have a negative impact on the region's construction market.
In addition, International Construction will continue to be impacted by its clients', in particular oil companies', appetite for capital expenditure projects. Any decrease in oil prices may lead to fewer new projects and/or delays to existing projects.
Cash collection will also be a significant factor affecting the Group's results in its international Construction operations. Despite the lack of improvement in cash collection receivable days during the past twelve months, Interserve expects that cash collection receivable will begin to decrease in the coming years. This, in turn would decrease Interserve's receivables balances, thereby providing a material amount of cash to pay Interserve's creditors.
Finally, Interserve will continue to consider disposals of non-core assets in line with its strategy. Any disposals may have a material impact on the results of the Group's international Construction business.
Equipment Services
Interserve expects that Equipment Services will experience a growth in revenue during the near-term, although margins are expected to decrease during the same period. These outcomes are linked to the growth of the business's key markets, successful deployment of capital expenditure in new products and the successful management of the division's shifting revenue mix. Interserve believes in the near-term, there will be growth in all of the markets in which Equipment Services operates, save for the UAE and Qatar. In particular, Interserve anticipates growth in the UK, Australia, Philippines and Hong Kong. Incremental growth is also expected as a result of the roll out of ground shoring services in certain jurisdictions outside of the UK, particularly in Hong Kong. Infrastructure work is also expected to expand in Australia among other places. As a result of this anticipated market growth and corresponding demand for Interserve's Equipment Services products, utilisation rates are expected to improve during the period. The UAE and Qatar markets are eventually expected to return to growth, although this is dependent on the resolution of, among other things, the blockade of Qatar as well as the retention and the Group's ability to retain/replace key personnel with market experience. There is no guarantee that these markets will grow in line with the Group's expectations. Any economic downturns in key jurisdictions may lead to fewer or smaller projects being commissioned by the Group's clients, which would result in lower demand for the Group's products. In addition, Interserve expects that its capital expenditures will increase as a result of market expansion as well as roll-outs of its new product ranges. In particular, further capital expenditure will be required during 2019 and the following years in relation to high rise and ground shoring products in the UK, Hong Kong and the Middle East. The revenue mix of Equipment Services is expected to change. Interserve anticipates that there will be a decline in overall operating margins beginning in 2019 due to a shift in sales mix from higher margin hire sales to lower margin new sales as well as higher levels of growth in lower margin markets. This is primarily due to the expected recovery of infrastructure markets where clients operating large and longer term projects are more likely to buy rather than hire equipment. Interserve also expects to benefit from a decrease in overall debtor days in 2019. However, this is partially dependent on an improvement on the political situation in the Middle East, where certain clients have recently stretched out payments to the Group in an effort to preserve liquidity. These forecasts will be affected by the Group's ability to rehabilitate relationships with its key suppliers following the implementation of the Deleveraging Plan. As a result of recent negative press relating to the financial condition of the Group, certain of Equipment Service's suppliers have restricted the levels of credit open to Interserve. As Interserve is reliant on a small number of key suppliers for the sourcing of its products in the Equipment Services division, repairing and maintaining these relationships will be a key driver to the business's results.
3. Financing, Capital Structure and Implementation of the Deleveraging Plan
3.1 Existing Financing Structure
As noted above, on 27 April 2018, Interserve announced it had completed the April 2018 Refinancing.
As part of the April 2018 Refinancing, the Group secured access to new term loan facilities of
(a) Existing Cash Financing Arrangements
Following the April 2018 Refinancing, the Group has the following cash financing arrangements, referred to in this announcement as the "Existing Cash Financing Arrangements":
(i) Super Senior Term Loan Facilities, comprising two English law governed term loan facilities of
(ii) Senior RCF Facilities, comprising the following English law governed revolving credit facilities:
(A) a syndicated revolving credit facility of
(B) two bilateral revolving credit facilities of
(C) a bilateral revolving credit facility of
(D) a bilateral revolving credit facility of
Each of the Senior RCF Facilities is currently scheduled to mature on 30 September 2021. The original borrower under each of the Senior RCF Facilities is IGHL. As at the Latest Practicable Date, each of the Senior RCF Facilities was fully drawn. The interest rate on each of the Senior RCF Facilities consists of: (i) cash interest at a rate of LIBOR plus 3.00 per cent. per annum; (ii) PIK interest at a rate of 1.43 per cent. per annum, which capitalises on the earlier of the date on which Interserve completes an equity raise with proceeds of at least
(iii) USPP Notes, comprising the following three series of New York law governed notes issued by IGHL under a note purchase agreement:
(A)
(B)
(C)
The interest rate on the USPP Notes consists of (i) cash interest at the rate applicable to the relevant tranche; and (ii) if the Group's average daily ratio of net debt during the Group's most recent financial quarter to EBITDA in respect of the 12 months ending on the last day of the Group's most recent financial quarter was equal to or greater than 3.0:1, PIK interest at a rate of 2.00 per cent. per annum until 30 September 2019, subsequently ratcheting up over time according to a leverage grid to a maximum rate of 9.00 per cent. in respect of the financial quarter ending 30 September 2021 if the ratio is greater than 5.0:1, which capitalises quarterly and thereafter bears cash interest at the rate applicable to the relevant tranche of USPP Notes and PIK interest at a rate determined in accordance with the leverage grid. The USPP Notes are, together, with the Senior RCF Facilities, referred to in this announcement as the "Senior Cash Facilities". The holders of the USPP notes (the "USPP Holders") are, together with the Senior RCF Lenders, referred to in this announcement as the "Senior Cash Facility Lenders" and, together with the Super Senior Term Loan Lenders and the Senior RCF Lenders are referred to in this announcement as the "Lenders".
(b) Existing Bonding Arrangements
Following the April 2018 Refinancing, the Group also has the following bonding arrangements, referred to in this announcement as the "Existing Bonding Arrangements", and, together with the Existing Cash Financing Arrangements, the "Existing Financing Arrangements":
(i) Super Senior Instrument Facility, comprising an English law governed bonding facility of up to
(ii) Senior Instrument Facilities, comprising a number of uncommitted bonding facilities with bonding providers entered into by various members of the Group. As part of the April 2018 Refinancing, the fee payable on instruments issued under each of the Senior Instrument Facilities (which varies between the Senior Instrument Facilities) was increased by 0.5 per cent. per annum. If the Group's average daily ratio of net debt during the Group's most recent financial quarter to EBITDA in respect of the 12 months ending on the last day of the Group's most recent financial quarter was equal to or greater than 3.0:1, instruments issued under the Senior Instrument Facilities bear a PIK fee at a rate of 2.00 per cent. per annum until 30 September 2019, subsequently ratcheting up over time according to a leverage grid, to a maximum rate of 9.00 per cent. for the financial quarter ending 30 September 2021 if the ratio is greater than 5.0:1, which capitalises quarterly and thereafter bears a cash fee at the same rate as the instrument itself and a PIK fee at a rate determined in accordance with the leverage grid. The bonding providers under the Senior Instrument Facilities are referred to in this announcement as the "Senior Instrument Facility Lenders" and, together with the Super Senior Instrument Facility Lenders, the "Bonding Providers".
(c) Override Agreement
The Existing Obligors, the Lenders and the Bonding Providers entered into an override agreement (the "Override Agreement") as part of the April 2018 Refinancing under which the Lenders and the Bonding Providers each benefit from the same mandatory prepayment rights, information undertakings, financial and non-financial covenants and events of default. Equivalent provisions under the financing documents in respect of the Existing Financing Arrangements that were in place prior to the April 2018 Refinancing have been overridden and replaced by the terms of the Override Agreement.
(d) Deficit recovery contributions in respect of the Pension Scheme
In connection with the April 2018 Refinancing, the Group agreed with the Pension Trustee the following deficit recovery contributions in respect of the Pension Scheme: (i)
(e) Guarantees and security
Following the April 2018 Refinancing, each of the Existing Financing Arrangements and the Pension Scheme benefit from guarantees from the Existing Obligors. Amounts owed to the Lenders and the Bonding Providers under the Existing Financing Arrangements and to the Pension Trustee in respect of the Pension Scheme also have the benefit of a comprehensive security package granted by the Existing Obligors. The security package consists of, subject to certain limited exceptions in each case: (i) security over the shares in the Existing Obligors (other than Interserve plc); and (ii) fixed and floating charges over the assets of each Existing Obligor incorporated in England and equivalent security over the assets of each other Existing Obligor to the extent possible.
(f) Priorities
The Lenders, the Bonding Providers and the Pension Trustee agreed the following priorities in respect of the proceeds of enforcement of security pursuant to an intercreditor agreement (the "Intercreditor Agreement") as part of the April 2018 Refinancing:
i. the Super Senior Term Loan Facilities and the Super Senior Instrument Facilities are first-ranking and have the benefit of priority over the other Existing Financing Arrangements and the Pension Scheme;
ii.
iii. the remainder of the Senior Cash Facilities, the Senior Instrument Facilities and the remaining liabilities owed in respect of the Pension Scheme are third-ranking but on the basis that the aggregate amounts paid to Senior Cash Facility Lenders under the Senior Cash Facilities and Bonding Providers under the Senior Instrument Facilities is equal to 88 per cent. of the recoveries available for distribution to third-ranking claims and the amount paid to the Pension Trustee in respect of the Pension Scheme is equal to 12 per cent. of such recoveries.
(g) Warrants
As part of the consideration for the April 2018 Refinancing, Interserve issued to the Super Senior Term Loan Lenders and the Super Senior Instrument Lenders Warrants equivalent to 25 per cent. of the issued share capital of Interserve immediately following completion of the April 2018 Refinancing. The equity warrants have an exercise price of
3.2 New Cash Financing Arrangements
As part of the Deleveraging Plan, the Lenders will make available a new term loan facility of
(a) Tranche A:
(b) Tranche B:
(c) Tranche C:
Commitments under the New Super Senior Facility will be allocated between Super Senior Term Loan Lenders and Senior Cash Facility Lenders (other than one Lender, which will be allocated a pro rata share of the commitments under Tranche C only) pro rata to their exposures under the Super Senior Term Loan Facilities and the Senior Cash Facilities respectively (taking into account the Make-Whole Amount). In order to compensate Lenders for the additional risk that they will take on by extending further credit to the Group in the present circumstances, they will receive (subject to certain exceptions) a reallocation of New Ordinary Shares on the basis that two thirds of the New Ordinary Shares will be allocated pro rata to each Lender's exposure under the New Super Senior Facility (once taking into account the Make-Whole Amount).
The New Super Senior Facility will (i) have a maturity of three years from the Effective Date, (ii) have the benefit of security over assets of material subsidiaries within the Interserve Group (iii) be guaranteed by all material subsidiaries within the Interserve Group (but will not be guaranteed by any member of RMDK) and (iv) receive a cash pay interest of LIBOR plus 3 per cent per annum. Tranche B will be drawn down in full on the first utilisation date and be paid into a separate account. Assuming no default or material breach of certain representations is outstanding under the New Super Senior Facility, the Group will be able to make withdrawals from the Tranche B account, with such withdrawals to be returned after an agreed number of business days. Tranche C may only be utilised to fund certain specified legacy liabilities.
Tranche A may be increased pursuant to a
In addition, the Existing Cash Financing Arrangements will be restructured pursuant to the Deleveraging Plan into the following debt facilities:
(a) the "RMDK FinCo Facility": as part of the RMDK Ring-Fencing, IHL will assume
(b) the "IHL Facility": as part of the RMDK Ring-Fencing, IHL will assume
Following completion of the Deleveraging Plan, and taking into account (i) participations under the Senior Cash Facilities which are exchanged for New Ordinary Shares, (ii) participations under the Senior Cash Facilities which are prepaid from the proceeds of the Placing and Open Offer and (iii) the restructuring of the remaining participations under the Senior Cash Facilities (as set out above), no Senior Cash Facilities will remain within the Interserve Group. The participations under the Senior Cash Facilities that will be exchanged for New Ordinary Shares or prepaid from the proceeds of the Placing and Open Offer will, in aggregate, be equal to approximately
The Super Senior Term Loan Lenders and the Senior Cash Facilities will waive their rights to PIK interest and the Additional PIK Margin, as well as certain back-end fees, as part of the Deleveraging Plan.
3.3 RMDK Ring-Fencing
The Deleveraging Plan will include a "ring-fencing" of RMDK (the "RMDK Ring-Fencing"). As part of this, a new holding company for RMDK ("RMDK HoldCo") will be incorporated, which will be wholly-owned by Interserve Holdings Limited (which is the current holding company for RMDK). A sub-holding company will be incorporated, which will be wholly-owned by RMDK HoldCo ("RMDK FinCo") and an additional sub-holding company will be incorporated below RMDK FinCo which will own the various holding companies and operating companies in RMDK. As further described at paragraphs 3.4(a) and (b) below, RMDK FinCo will be the borrower under the RMDK FinCo Facility and IHL will be the borrower under the IHL Facility.
The Interserve Group will be released from its liabilities in respect of the Existing Cash Financing Arrangements that are rolled into the RMDK Facilities and will not be obligors under, or provide any guarantees or security in respect of, the RMDK Facilities. In addition, none of the RMDK companies will be obligors under, or provide any guarantees or security in respect of, the New Super Senior Facility. However, cash within RMDK will be made available to the Interserve Group if required, except where a default or potential default is continuing under either the RMDK FinCo Facility or the New Super Senior Facility.
3.4 Stapling
For a period following Admission, the Lenders under the New Super Senior Facility and the RMDK Facilities may not transfer their exposure under any of those facilities without transferring a pro rata amount of the New Ordinary Shares that are allotted to them pursuant to their underwriting obligations.
In addition, the RMDK FinCo Facility and the IHL Facility will be stapled together until the RMDK FinCo Facility is refinanced in full. However, the New Super Senior Facility and the RMDK Facilities will not be stapled to each other.
3.5 New Bonding Arrangements
(a) The New Super Senior Bonding Facilities
The Bonding Providers will provide
In addition, the New Super Senior Bonding Facilities will also benefit from security and guarantee claims in respect of RMDK FinCo and members of the RMDK group, which will rank pari passu with the guarantees and security guaranteeing and securing the RMDK FinCo Facility. These guarantee and security claims will be limited to certain amounts on an individual institution-by-institution basis, which, together, will initially amount to
The RMDK Security Amount will gradually reduce (on an institution-by-institution basis) as bonds under the New Super Senior Bonding Facility run off over time and as the Interserve Group transitions to an unsecured, business-as-usual, bonding environment.
The pricing for the New Super Senior Bonding Facilities will be as follows:
(i) in respect of cash releasing instruments equivalent to the pricing for the New Super Senior Facility; and
(ii) in respect of non-cash releasing instruments 2.5 per cent. per annum.
The Bonding Providers will waive their rights to PIK fees in respect of the Super Senior Instrument Facility as part of the Deleveraging Plan.
(b) The existing Senior Instrument Facilities
The Senior Instrument Facility Lenders will release their existing security and the guarantees by RMDK but will retain their existing guarantee network in the Interserve Group. The existing Senior Instruments Facilities will have their maturity extended to three years from the Effective Date but instruments issued thereunder will run-off and will not be reissued. In addition, the Senior Instrument Facilities will retain their existing guarantee network over the Interserve Group on an unsecured basis and will release guarantees and security given or granted by RMDK.
The pricing for the existing Senior Instrument Facilities will revert to the original (pre-April 2018 Refinancing) pricing with a floor of 0.95 per cent. per annum.
The Bonding Providers will waive their rights to PIK fees in respect of the Senior Instrument Facilities as part of the Deleveraging Plan.
3.6 The Pension Restructuring
The key terms of the Deleveraging Plan as regards the Pension Scheme are as follows: (i) deficit repair contributions in respect of the Pension Scheme will be
3.7 Warrants
The Warrant Holders passed an Extraordinary Resolution on or around the date of this announcement to amend the terms of the Warrants in certain respects including to postpone the adjustments required to be made to the number of Warrant Shares following completion of the Placing and open Offer until such time as the Company has sufficient shareholder authorities in place in order to offer such adjustments and to permit the Warrant holders to exercise Warrants during the period of the Open Offer.
3.8 Effects of the Deleveraging Plan
It is expected that 2,844,678,822 New Ordinary Shares will be issued pursuant to the Placing and Open Offer, constituting 95 per cent. of the Enlarged Issued Share Capital (assuming that, other than the Placing and Open Offer, no further Ordinary Shares are issued by the Company between the release of this announcement and Admission). The Placing and Open Offer will result in a significant equity dilution for existing Shareholders, such that the Company's Existing Ordinary Shares will represent (i) 5 per cent. of the Enlarged Issued Share Capital assuming that, other than the Placing and Open Offer, no further Ordinary Shares are issued by the Company between the date of this announcement and Admission, and (ii) 4.95 per cent. of the Enlarged Issued Share Capital assuming that, other than the Placing and Open Offer, no further Ordinary Shares are issued by the Company between the date of this announcement and Admission save for Warrant Shares (assuming the exercise of all outstanding Warrants) and assuming no adjustments are made consequent upon the Placing and Open Offer to the number of Warrant Shares.
The key effects of the Deleveraging Plan are:
· net cash-pay leverage of the Group (excluding the RMDK non-cash pay debt instrument) will be reduced to less than 1x EBITDA and total net leverage (including the RMDK non-cash pay debt instrument) reduced to approximately 2x EBITDA; and
· a strong balance sheet, with
The Directors believe that the proposed Deleveraging Plan, including the injection of additional equity capital in the Company pursuant to the Placing and Open Offer, will improve the Group's capital structure, reduce the cost of the Group's debt service, improve the ongoing liquidity position of the Group and avoid the adverse consequences that would occur if the Deleveraging Plan does not proceed.
3.9 Implementation of the Deleveraging Plan
In order to implement the Deleveraging Plan, certain actions by the Lenders, the Bonding Providers and the Pension Trustee] and approvals from Shareholders are required. Each of these actions and approvals is summarised below.
(a) The Lenders. Implementation of the Deleveraging Plan as regards the Lenders will be effected by each of the Lenders entering into the Restructuring Documents, which will become effective on the Effective Date. Under the terms of the Existing Cash Financing Arrangements, this requires the participation of each Lender. All of the Lenders have entered into Commitment Letters pursuant to which they have committed to facilitate the Deleveraging Plan
(b) The Bonding Providers. Implementation of the Deleveraging Plan as regards the Bonding Providers will be effected by each of the Bonding Providers entering into the Documents and the New Bonding Arrangements on the Effective Date. All of the Bonding Providers have entered into Commitment Letters pursuant to which they have committed to facilitate the Deleveraging Plan, including by entering into the Restructuring Documents.
(c) The Pension Trustee. Implementation of the Deleveraging Plan as regards the Pension Trustee will be effected by the Pension Trustee entering into the Restructuring Documents and the Pension Restructuring Documents on the Effective Date. The Pension Trustee has entered into Commitment Letters pursuant to which it has committed to facilitate the Deleveraging Plan, including by entering into the Restructuring Documents.
(d) The Shareholders. The Shareholders will be asked to vote on the Resolution at the General Meeting. The Resolution is necessary in order to approve, amongst other things the issue of the New Ordinary Shares to be issued as part of the Placing and Open Offer.
4. Inter-conditionality of the Deleveraging Plan
The implementation of the New Cash Financing Arrangements, the New Bonding Arrangements, the Pension Restructuring, and the Placing and Open Offer are each conditional on the implementation of each of those other elements of the Deleveraging Plan. Due to the inter-conditionality of these elements of the Deleveraging Plan, if any of these elements does not occur, including by reason of Shareholders not approving the Resolution, the Deleveraging Plan will not proceed.
5. Use of proceeds
It is intended that the net proceeds of the subscription for New Ordinary Shares by Qualifying Shareholders under the Placing and Open Offer will be applied by the Group in repayment of the Senior Cash Facilities, on a pro rata basis, in order to reduce the level of outstanding indebtedness under the Existing Cash Financing Arrangements. Any New Ordinary Shares issued to the Senior Cash Facility Lenders or their designated affiliates under the Placing and Open Offer pursuant to their underwriting obligations under the Commitment Letters will be subscribed for in consideration for the release of debt under the Senior Cash Facilities. For every nine pounds worth of New Ordinary Shares that the Senior Cash Facility Lenders or their designated allottees subscribe for (calculated at the Issue Price), the amount of debt under the Senior Cash Facilities that will be released will be ten pounds, such that the Senior Cash Facility Lenders release a higher par value of debt than will be paid by Qualifying Shareholders who subscribe for New Ordinary Shares at the Issue Price pursuant to the Open Offer. For every nine pounds worth of New Ordinary Shares the Qualifying Shareholders subscribe for (calculated at the Issue Price), which proceeds will be used to repay the debt payable by the Company, one additional pound of debt payable by the Company will be released.
6. Dividends and dividend policy
In 2017, the Company took the decision to suspend dividend payments. Following the implementation of the Deleveraging Plan, the Company will not be able to pay dividends to Shareholders unless the consent of more than two-thirds of the lenders under the New Super Senior Facility (calculated by reference to commitments) and more than two-third of the lenders under the New Super Senior Bonding Facilities (calculated by reference to commitments) is obtained.
7. Risk factors and further information
You should consider fully the risk factors associated with the Group, its industry and the Placing and Open Offer, as will be set out in full in the Combined Prospectus and Circular. Certain of such risk factors are also set out in Appendix 2 to this announcement.
Shareholders should read the whole of the Combined Prospectus and Circular and should not rely on the selective information set out in this announcement.
8. Principal terms and conditions of the Placing and Open Offer
8.1 Fully underwritten Placing and Open Offer
Interserve is proposing to raise gross proceeds of
Under the Open Offer, Qualifying Shareholders are being given the opportunity to apply for the Open Offer Shares at the Issue Price on and subject to the terms and conditions of the Open Offer, pro rata to their holdings of Ordinary Shares on the Record Date on the following basis:
19 New Ordinary Shares for every 1 Existing Ordinary Share
and so in proportion to any other number of Existing Ordinary Shares then held.
The Senior Cash Facility Lenders have, pursuant to the Commitment Letters, conditionally agreed to subscribe or procure subscribers for all the Open Offer Shares at the Issue Price (the "Equity Underwriting"). The commitments of the Senior Cash Facility Lenders are subject to clawback in respect of valid applications for Open Offer Shares by Qualifying Shareholders pursuant to the Open Offer. Subject to the Company having complied with the Commitment Letters and the Commitment Letters not having been terminated in accordance with their terms, any Open Offer Shares which are not validly applied for in respect of the Open Offer will be issued to the Senior Cash Facility Lenders or their designated affiliates subject to the terms and conditions of the Commitment Letters.
Fractions of New Ordinary Shares will not be allotted and each Qualifying Shareholder's entitlement under the Open Offer will be rounded down to the nearest whole number. Accordingly, Qualifying Shareholders with fewer than 9 Existing Ordinary Shares will not have the opportunity to participate in the Open Offer.
The New Ordinary Shares issued under the Placing and Open Offer, when issued and fully paid, will be identical to, and rank pari passu with, the Existing Ordinary Shares, including the right to receive all dividends and other distributions declared, made or paid on the Existing Ordinary Shares by reference to a record date on or after Admission.
8.2 Equity Underwriting
The Senior Cash Facility Lenders will underwrite the Placing and Open Offer pro rata to their commitments under the Senior Cash Facilities pursuant to the terms of the Commitment Letters. Any amount of New Ordinary Shares issued to Senior Cash Facility Lenders as a result under the Equity Underwriting will be subscribed for by the release of debt under the Senior Cash Facilities. For every nine pounds worth of New Ordinary Shares that the Senior Cash Facility Lenders or their designated allottees subscribe (calculated at the Issue Price), the amount of debt under the Senior Cash Facilities that will be released will be ten pounds, such that the Senior Cash Facility Lenders release a higher par value of debt than will be paid by Qualifying Shareholders who subscribe for New Ordinary Shares at the Issue Price pursuant to the Open Offer.
While Interserve's ordinary shares remain listed on the Official List and admitted to trading on the Main Market of the London Stock Exchange, the Lenders holding New Ordinary Shares will undertake (subject to customary exceptions) not to sell, transfer or otherwise dispose of the New Ordinary Shares they receive for a period of not more than 120 days from Admission (the "Equity Lock-Up Arrangement"), except (i) to their respective affiliates on the basis that such affiliate agrees to comply with the terms of the Equity Lock-Up Arrangement; or (ii) to another Lender (or its affiliates), provided that an equivalent proportion of the transferring Lender's commitments under the Super Senior Term Facilities Agreement, the IHL Facility Agreement and the RMDK FinCo Facility Agreement are transferred to the other Lender at the same time as the New Ordinary Shares. If there is sufficient take up under the Open Offer such that the Lenders (together with their respective affiliates) hold less than 75 per cent. of the ordinary share capital of Interserve on completion of the Deleveraging Plan, the period of the Equity Lock-up Arrangement will be reduced to 30 days.
The make-whole amount on the portion of USPP Notes to be converted into New Ordinary Shares or repaid as part of the Placing and Open Offer will be crystallised and added to the amount of debt held by USPP Holders under the Senior Cash Facilities prior to completion of the Placing and Open Offer.
8.3 Dilution
A Qualifying Shareholder that does not take up any Open Offer Shares under the Open Offer (or a Shareholder in the United States or an Excluded Territory who is not eligible to participate in the Open Offer) will experience a dilution of 95 per cent. as a result of the Placing and Open Offer, assuming that, other than the Placing and Open Offer, no further Ordinary Shares are issued by the Company (and no Warrants are issued) between the date of this announcement and Admission.
8.4 Conditionality
The Placing and Open Offer is conditional, inter alia, upon:
(a) the Resolution having been passed by Shareholders at the General Meeting (or at any adjournment thereof);
(b) the Lenders entering into the Restructuring Documents;
(c) the Bonding Providers and the Pension Trustee entering into the Restructuring Documents;
(d) save for any condition in relation to Admission, the New Super Senior Facility and the New Super Senior Bonding Facilities being available to the Company to drawdown;
(e) the Company having complied with its obligations which fall to be complied with on or prior to Admission under the Commitment Letters and the Commitment Letters not having been terminated in accordance with their terms;
(f) Admission becoming effective by not later 29 March 2019 (or such later date as the Company may agree with the requisite majority of the Lenders, each Bonding Providers and Pension Trustee, not being later than 30 April 2019).
Accordingly, if any such conditions are not satisfied or, if applicable, waived, then the Placing and Open Offer will not proceed.
9. General Meeting
The Notice of General Meeting to be held at The Broadgate Suite, ETC Venues, 155 Bishopsgate, Liverpool Street, London, EC2M 3YD, on 15 March 2019 at 11.00 a.m. will be set out at the end of the Combined Prospectus and Circular. The purpose of this meeting is to seek Shareholders' approval to the Resolution set out in the Notice of General Meeting. The following Resolution will be proposed at this meeting:
1. To:
1.1 approve the terms, including as to discount, of the Placing and Open Offer as set out in this document, and to direct the Board to exercise all powers to cause Interserve to implement the Placing and Open Offer; and
1.2 authorise the Directors pursuant to section 551 of the 2006 Act to allot shares and grant rights to subscribe for, or convert any security into, shares up to an aggregate nominal amount of
The Directors intend to use the authorities granted at the General Meeting to allot New Ordinary Shares pursuant to the Placing and Open Offer. Other than in connection with the Placing and Open Offer or the exercise of Warrants, the Directors have no present intention to utilise these authorities.
10. Importance of the vote and working capital
The Resolution must be passed by Shareholders at the General Meeting in order for the Deleveraging Plan to proceed.
If the Resolution is not passed and the Deleveraging Plan does not proceed:
· no new funding will be made available under the New Super Senior Facility;
· the Placing and Open Offer will not be implemented;
· the Group will be unable to fund its short term liquidity requirements and will have an immediate working capital shortfall, regardless of whether the Lenders have demanded the repayment of the Group's borrowings under the Existing Cash Financing Arrangements; and
· the waivers and deferrals included in the Stable Platform Agreement will immediately terminate and be deemed to be void from the point at which they were entered into. In such a scenario, the Group will be in continuing default under the Existing Financing Arrangements.
As a result of the default, Lenders will be entitled to demand repayment of all borrowings under the terms of the Existing Cash Financing Arrangements, which the Group will not be in a position to afford to repay, and the Lenders will also have the right to take immediate steps to enforce their security over shares in the companies comprising the Group and other assets of the Group that secure the borrowings under the terms of the Existing Financing Arrangements. In such circumstances, the Group will need to find immediate alternative financing sufficient to fund its short term liquidity requirements and the full repayment of the Existing Financing Arrangements. Having considered and explored other financing and equity-based options prior to proposing the Deleveraging Plan, the Board believes that there is no realistic prospect of such funds being available in order to fund such a full repayment. The Board and its advisors explored various potential means of addressing the Group's current financial situation, including raising equity from investors, and concluded that, given the Group's current financial position, and with the volatile and uncertain conditions currently affecting the Group's business and the UK economy, raising sufficient equity investment is not possible. It follows that if Shareholders fail to approve the Resolution, the Group's ability to continue trading will be dependent on continued support from the Lenders.
Having sought support from the Lenders, the Board has also received confirmation from the Lenders that they are only able to provide monies and continue supporting the Group in its current state if the Deleveraging Plan or a transaction substantially similar to the Deleveraging Plan is implemented in the immediate future. In summary, this is because the Group's position is only likely to deteriorate further given its inability to service its short term cash requirements, its insufficient liquidity to service its debt and other liabilities and the impact of the current over-leveraged balance sheet on the Group's ability to secure new contracts. As such, it has been necessary for the Company to agree with the Lenders as a condition to their ongoing financial support that the Company would seek to implement an alternative transaction to provide funding to meet the Group's immediate working capital requirements and strengthen the Group's balance sheet if it becomes apparent that the Deleveraging Plan is not capable of being implemented (for example, if the Resolution is not approved at the General Meeting) in order to maintain the Group's ability to continue operating as a going concern, thereby preserving value for the Lenders and other stakeholders. This alternative will involve the Lenders supporting the Directors' decision to take steps to immediately appoint an insolvency practitioner in respect of the Company. This in turn would likely involve the insolvency practitioner effecting a sale of the Group (other than the Company) to a newly incorporated company owned by the Lenders for nominal cash consideration and/or the relief of debt owed (or to be owed) by the Group to the Lenders. Subject to the finalisation of the relevant transaction documents and the views of the relevant insolvency practitioner, it is expected that such an alternative deleveraging transaction could be implemented within a very short period following the failure by Shareholders to approve the Resolution in order to preserve value and repair the Group's balance sheet. The Board believes that such an alternative transaction would be in the best interests of the Company's creditors and other stakeholders if the consensual Deleveraging Plan is not capable of being implemented. However, a consequence of this alternative implementation plan is that it would result in there being no return to Shareholders.
As such, in deciding whether or not to vote in favour of the Resolution, Shareholders should take into consideration, among other things, (i) that the Group is currently dependent upon the ongoing support of the Lenders to continue as a going concern; (ii) that unless the Resolution is approved by Shareholders at the General Meeting so that the Deleveraging Plan can proceed the Group will be faced with an immediate working capital shortfall and the waivers and deferrals included in the Stable Platform Agreement will immediately terminate and be deemed to be void from the point at which they were entered into, meaning that the Group will be in continuing default under the Existing Financing Arrangements; (iii) in such a scenario, the Board considers that it is likely to be in the best interests of the Company's creditors and other stakeholders to appoint an insolvency practitioner in respect of the Company in order to allow the insolvency practitioner to facilitate an alternative transaction which preserves value and repairs the Group's balance sheet; and (iv) that there would be no return to Shareholders if the alternative transaction is implemented or if a value-destructive insolvency process needs to be commenced. The Board believes that the Deleveraging Plan is the best available means of preserving the Group's business and providing job security for approximately 68,000 employees while providing the only realistic opportunity for Shareholders to recover any value in return for their investment in the Company.
Accordingly, it is very important that Shareholders vote in favour of the Resolution, as the Board considers that the Deleveraging Plan is the best transaction possible for the Company, the Shareholders and its stakeholders as a whole in the current circumstances.
Appendix 1
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
|
Record Date for entitlements under the Open Offer |
6.00 p.m. on 25 February 2019 |
|
Announcement of the Deleveraging Plan |
27 February 2019 |
|
Publication and posting of this document, the Forms of Proxy and the Application Forms |
27 February 2019 |
|
Ex-entitlement date for the Open Offer |
28 February 2019 |
|
Publication of Notice of the Open Offer in the London Gazette |
28 February 2019 |
|
Open Offer Entitlements credited to stock accounts in CREST of Qualifying CREST Shareholders |
As soon as practicable after |
|
Latest recommended time and date for requesting withdrawal of Open Offer Entitlements from CREST (i.e. if your Open Offer Entitlements are in CREST and you wish to convert them into certificated form) |
4.30 p.m. on 11 March 2019 |
|
Latest recommended time and date for depositing Open Offer Entitlements into CREST (i.e. if your Open Offer Entitlements are represented by an Application Form and you wish to convert them to uncertificated form) |
3.00 p.m. on 12 March 2019 |
|
Latest time and date for splitting Application Forms (to satisfy bona fide market claims) |
3.00 p.m. on 13 March 2019 |
|
Latest time and date for receipt of completed Application Forms and payment in full under the Open Offer or settlement of relevant CREST instructions (as appropriate) |
11.00 a.m. on 15 March 2019 |
|
Latest time and date for receipt of Forms of Proxy or submission of proxy votes electronically |
11.00 a.m. on 13 March 2019 |
|
Record time for the General Meeting |
6.00 p.m. on 13 March 2019 |
|
General Meeting |
11.00 a.m. on 15 March 2019 |
|
Announcement of the results of the General Meeting |
15 March 2019 |
|
Announcement of the results of the Open Offer |
18 March 2019 |
|
Admission and commencement of dealings in respect of New Ordinary Shares and CREST stock accounts credited in respect of New Ordinary Shares |
8.00 a.m. on 19 March 2019 |
|
Despatch of share certificates in respect of New Ordinary Shares in certificated form |
week commencing 1 April 2019 |
Notes:
(1) References to times are to London time unless otherwise stated.
Appendix 2
Risk Factors
If the Group is unable to achieve the anticipated benefits of its new strategy or the Deleveraging Plan, its business, financial condition and results of operations could be adversely affected.
The Group's financial performance and future prospects depend significantly on its ability to successfully implement its multi-year transformation programme and new strategy.
In late 2017, Interserve launched its "Fit-for-Growth" programme, designed to improve cost efficiency and effectiveness across the Group and to ensure Interserve leverages its scale and has the right strength, depth and level of resources going forward. The Directors anticipate this programme will deliver
If the Group fails to successfully implement these or any other elements of its strategy as expected or if it is delayed in doing so, its operational performance, both in terms of contract performance and cost management, could be negatively impacted. It may also be competitively disadvantaged, causing it to lose market share. Clients and suppliers may also lose confidence in the Group if a failure in strategy implementation impacts its financial position. The success of the Group's strategy is also contingent upon the continued ability of the Group's management and employees to deliver efficient services to clients, to meet client expectations and demands and to successfully bid for new contracts and renew contracts with existing clients.
In addition, the Company anticipates that as a result of the Deleveraging Plan, the Group will have a solid foundation from which to capitalise on potential future consolidation in Interserve's markets. However, the anticipated benefits of the Deleveraging Plan may not be fully realised. For example, there can be no assurance that, following the full implementation of the Deleveraging Plan, the Group's reputation, and its clients' and/or suppliers' perception of it, will recover in the short term, or at all, from the effects of publicity surrounding the Deleveraging Plan and potential negative perceptions associated with it. This may result in the Group losing out on new contract bids or on renewals of its existing contracts and may also result in a deterioration of Interserve's relationships with its suppliers and services providers, resulting in stricter credit terms or suppliers and/or contractors refusing to do business with Interserve, any of which would have a negative impact on its operating results.
Depending on changing market, operational and financial conditions and management's future expectations, the Group may decide to alter or discontinue certain aspects of its stated strategy, which may have a material adverse effect on its business, results of operations and financial condition.
In the event that the Group is unable to achieve one or more of the anticipated benefits of its new strategy or the Deleveraging Plan, this could have a material adverse effect on its growth prospects and future profitability.
The Company has received a requisition notice that may have a negative impact on the Group.
On 5 February 2019, Interserve received a letter from Coltrane Master Fund, L.P., an affiliate of Coltrane Asset Management LLP ("Coltrane"), requisitioning a General Meeting of the Company's shareholders (the "Requisition Notice"). The Requisition Notice proposes resolutions that Glyn Barker, Mark Whiteling, Russell King, Anne Fahy, Nick Salmon, Gareth Edwards, Dougie Sutherland (Dougie Sutherland resigned from the Board on 12 February 2019) and Nick Pollard be removed as directors of Interserve and that certain other directors be appointed as their replacements (the "Requisition Resolutions"). Under the Companies Act, Interserve is required to call a general meeting of shareholders to vote on these ordinary resolutions. On 26 February 2019, Interserve posted a notice of general meeting to Shareholders convening a general meeting to consider the Requisition Resolutions on 26 March 2019 at 1.30 p.m.
Interserve's management may be required to expend considerable time and resources in responding to the Requisition Notice, which may impact its ability to successfully implement the Deleveraging Plan or the Group's strategy. In addition, in the event that the Requisition Resolutions pass, it would be forced to replace certain members of the Board. Any change in Interserve's board composition, or any diversion of the existing Board's attention, may have a material adverse impact on its ability to execute its business plan and strategy. In particular, any change in the board composition in the near future risks destabilising the business at a critical point and may impact the ability of the Group to recover from its current financial and operational difficulties and may impede its ability to successfully implement the Deleveraging Plan. In addition, it may have a negative impact on staff morale and the ability to retain members of senior management. The occurrence of any of these events may have a material adverse effect on the Group's business, results of operations and financial condition.
The Requisition Notice also included various criticisms of the Board in relation to the historical effectiveness of its management and its fulfilment of its duties to shareholders. Although Interserve is not aware of any formal claims or proceedings having been made against it by Coltrane as of the date of this announcement, there can be no assurances that Coltrane will not bring such claims in the future. Damages claimed under such proceedings may be material or may be indeterminate, proceedings may be lengthy and consume significant time and resources and the outcome of such litigation or arbitration could materially adversely affect the Group's reputation as well as its business, results of operations and financial condition.
In addition, the Override Agreement contains conditions that Debbie White and Mark Whiteling remain in their positions as Interserve directors. If the Requisition Resolution relating to the removal of Mark Whiteling is passed, it would therefore immediately trigger an event of default under the Stable Platform Agreement and the Override Agreement. The Lenders would then be entitled to demand repayment of all borrowings under the terms of the Existing Cash Financing Arrangements and would have the right to take immediate steps to enforce their security over shares in the companies comprising the Group and other assets of the Group that secure the borrowings under the terms of the Existing Cash Financing Arrangements.
The Group has suffered damage to its reputation, in particular with its clients and suppliers, due to negative publicity which has and may continue to have a material adverse effect on the Group's business, results of operations and financial condition.
The Group's business is dependent upon its ability to develop and retain long-term relationships, in particular with its clients and suppliers, which is in large part reliant on its reputation. The Group operates in sectors where integrity and client trust and confidence are particularly important and it may therefore be vulnerable to adverse market perception. The reputation of the Group has been damaged by public concerns over its financial condition, particularly in the last eighteen months, and this has had a negative impact on its operations and, as a result, its cash flow and liquidity positions.
Recently, and in particular during the past eighteen months, certain clients have withdrawn or cancelled existing contracts, deferred potential contracts or not invited Interserve to bid for new contracts, in each case primarily due to concerns about the Group's financial status and viability. This has resulted in a reduction of the Group's current portfolio as well as its anticipated pipeline, with the most severe impact being sustained during the end of 2018 and the beginning of 2019. Although none of these cancelations were with parties that Interserve views as major clients, there can be no assurance that such cancelations do not take place in the future. If Interserve is unable to successfully rehabilitate its reputation in the eyes of its clients, the Group may continue to experience difficulties in winning new contracts and renewing existing contracts. This would have a material adverse effect on its business, results of operations and financial condition.
Negative press and concerns about the Group's financial stability have also impacted Interserve's relationships with its suppliers, including, for example, in relation to their ability to secure credit insurance. The Group has had difficulties with managing its supply chain. For example, certain suppliers have refused to take orders from the Group and/or have required separate commercial arrangements that impose stricter terms. Other suppliers have significantly reduced the Group's credit terms and, in certain instances, refused to take orders from the Group. While the Group believes that the successful implementation of the Deleveraging Plan will alleviate these issues, there can be no assurances that suppliers and/or customers regain confidence in the Group's financial stability in the timeframe the Group expects or at all.
The Group's reputation may be impacted by its failure to deliver contracts to the standards expected by its clients, which may lead to clients turning to the Group's competitors for tenders of new contracts or retenders of existing contracts or, in some cases, seeking to terminate contracts with the Group prior to their expiration. For example, the Group has received negative publicity in relation to delays in relation to certain of its EfW contracts. There remains the risk of further future losses and liabilities that may be significant. The Group may also attract attention from time to time where misconduct has been alleged and/or where claims have been made about its operational performance or that of other market participants. Actual or perceived defects in the Group's performance under any of its contracts could be used as evidence of the inappropriateness of outsourcing in general or to the Group specifically.
More generally, there has also in recent years been significant public scrutiny and/or controversy arising from the outsourcing of politically or socially sensitive services, and the increased use of social media has heightened this risk. The Group's reputation may suffer harm as a result of the actions of others that provide services in the same or similar sectors or its sub-contractors or suppliers. For example, the Group's reputation may be affected by the negative publicity created by the compulsory liquidation of UK construction services company, Carillion plc, in January 2018.
Damage to the Group's reputation, whether as a result of actual or perceived issues with the Group's performance or otherwise, has the potential to severely impact its ability to bid on or retender for contracts, win or retain business streams and maintain healthy relationships with its suppliers, and therefore could have a material adverse effect on its business, results of operations and financial condition.
The Group's EfW projects have resulted in material losses. There remains the risk of further future losses and liabilities that may be significant
Between 2012 and 2015, the Group entered into contracts relating to six EfW projects, in Glasgow, Derby, Margam, Templeborough, Dunbar and Peterborough. The Group has encountered delays and other difficulties, including in the case of Glasgow and Derby the failure and ultimate insolvency of its key technology provider and sub-contractor, Energos Limited ("Energos"). The associated aggregate losses recognised in the Group's income statement from its five Energy from Waste projects amounted to
Glasgow Project
In 2012, Interserve Construction Limited ("ICL") entered into a construction sub-contract (the "Glasgow Contract") with Viridor under which ICL was to carry out the design, construction, procurement, commissioning and rectification of defects in relation to a residual waste treatment facility in Glasgow (the "Glasgow Project") which Viridor was contracted to develop for Glasgow City Council. ICL, in turn, further sub-contracted certain elements of the works, specifically the design and installation of an advanced conversion facility ("ACF"), to Energos.
The relevant works were due to be completed in March 2016 but were significantly delayed. The operative causes of that delay were issues related to the Energos design of the ACF and the delay to the ACF works. The other elements of the works were certified as having reached readiness for commissioning in July 2016 but the ACF was subject to further delays.
In July 2016, Energos became insolvent and was unable to continue work on the ACF and the Group was required to step in to carry on the work itself. As a result of the continuing delay to the ACF, ICL was obligated to pay contractual liquidated damages to Viridor. These reached
The Glasgow Contract contains an overall limit on ICL's liability to Viridor under the contract which Interserve calculates after deducting payments to date as
i. Application of the liability cap to Viridor's claims;
ii. The order in which limitations on liability are taken into account in the compensation calculation;
iii. The scope of contractual pain-share provisions;
iv. The recovery of Viridor's indirect losses; and
v. Viridor's duty to mitigate its costs incurred in completing the works.
The judgements in this regard have been based upon appropriate legal and technical advice and the directors regard them as appropriate. Viridor's parent company's half year results to 30 September 2018 included a net receivable due from Interserve relating to this project of
Interserve commenced an adjudication seeking declarations confirming how the provisions referred to in (i), (ii) & (iii) above should be applied on 8 February 2019 and expects a decision to be delivered by April 2019. Any decision by the adjudicator could be subsequently challenged through arbitration.
The Directors have taken the view that the differences between the parties will be substantially narrowed if the interpretation disputes (i), (ii) & (iii) above are resolved. Assuming the Directors' views on these points are correct, the liability would be between £nil and
Derby Project
In December 2009, the Derbyshire County Council and Derby City Council (the "Councils") entered into a contract ("Derby Project Agreement") with Resource Recovery Solutions (Derbyshire) Limited ("RRS"),a special purpose vehicle funded by project finance and formed as a 50:50 joint venture between Interserve Developments No.4 Limited, a subsidiary of Interserve, and Shanks PFI Investments Limited (now Renewi PFI Investments Limited), for a long term waste management service. In August 2014, ICL entered into a construction contract (the "Derby Construction Contract") with RRS for the design and construction of waste facilities (the "Derby Plant") for the Councils (the "Derby Project"). The Derby Construction Contract was initially valued at c.
The construction of the Derby Plant experienced significant delays, primarily due to Energos, the key subcontractor for the provision of the advanced conversion technology ("ACT") (gasification facility), going into administration in June 2016 and various design issues arising in relation to the Energos works. ICL completed the physical construction of the Derby Plant in 2017, started receiving municipal waste in January 2018 and then began commissioning and transfer tests. During the fourth quarter of 2018, the completion tests were run but not as yet to the satisfaction of the independent certifier. There have also been certain mechanical issues with the facility which have required rectification. The Directors are confident that the Derby Plant will ultimately meet or exceed the required outputs. Delays would likely result in increased contractual costs to complete and damages. Depending on the cause, these costs could be recovered from insurers. It is not possible to quantify unknown circumstances which could cause delays, however current rates of costs and damages are c.
Interserve is currently in discussions to reach a consensual agreement with the independent certifier and other stakeholders in respect of the outstanding completion tests and discussions are currently ongoing around how to demonstrate satisfaction of those completion tests. However, there can be no assurance that such an agreement will be reached or that the remaining and/or revised tests can then be passed. As a result, the Group is exposed both to current and potential future liabilities, including for ongoing delay damages, defects related damages, performance damages and availability damages post-completion. In addition, the longstop date for the receipt of the completion certificate has passed and, in the event that Interserve and the Councils cannot come to an agreement, the Councils may seek to exercise their contractual right to terminate the Derby Project Agreement which in turn would lead to the termination of the Derby Construction Contract. In that scenario, RRS and/or its project finance lenders would seek to establish their losses and then to recover losses from ICL to the extent resulting from ICL's alleged default in terms of failing to achieve completion by the long stop date. The financial impact of such an event would depend on the calculation of the market value of the Derby Project, which the directors expect would reduce Interserve's debt and equity return in RRS but not create a claim against Interserve. Interserve's equity and debt interests in RRS were valued at
Dunbar, Margam, Peterborough and Templeborough Projects
The Group has an interest in four additional EfW projects, in Dunbar, Margam, Peterborough and Templeborough. Each of these projects was undertaken by ICL in joint venture with Babcock & Wilcox Vølund A/S ("BWV") pursuant to a separate consortium agreement (together, the "Consortium Agreements").
The Peterborough project was completed in 2017 and the Dunbar project was completed in January 2019. In respect of both of these projects the Group has a residual liability for defects as is common on projects of this nature. Interserve expects that its work on both the Margam and Templeborough projects will be completed during the first half of 2019, with both projects in the final stages of commissioning.
Interserve has suffered material losses under these contracts due to various construction, design and technology issues and the resulting delays of completion dates.
Although Interserve expects to complete the remaining projects with BWV during the first half of 2019, there can be no guarantee that these works will finish on schedule or without significant further unexpected costs. In particular, the projects may be delayed or Interserve may incur significant costs and/or penalties due to BWV's inability to complete its share of the works as scheduled.
The Consortium Agreements require ICL to provide the civil works while BWV is required to provide the technology elements of the projects. Notwithstanding the division of responsibilities, ultimately ICL and BWV have joint and several liability to the respective owners of these plants under the respective construction contracts (in ICL's case such liability is guaranteed by Interserve). Those joint and several liabilities are then reallocated subject to solvency and recovery risk under the Consortium Agreements in the event that either party does not fulfil its contractual obligations or becomes insolvent. ICL's joint and several obligations under the Consortium Agreements have also been guaranteed by Interserve. In addition, ICL will remain liable for defects in relation to both its work and BWV's work until the expiration of the relevant contractual and statutory limitation periods.
Accordingly, if BWV is unable or unwilling to fulfil its contractual obligations, including as a result of any insolvency, Interserve would be liable for those obligations. On 31 December 2018, BWV's parent company, Babcock & Wilcox Enterprises, Inc. ("BW") announced that it would begin the process to refinance its senior debt positions in the first quarter of 2019. If this is unsuccessful, or if BW's or BWV's solvency is in any other way impaired, the Company may be required to take responsibility for BWV's remaining obligations under its EfW projects under the terms of the various Construction Contracts. In such a scenario, Interserve's potential financial exposure is uncertain and impacted by a number of factors, particularly with respect to the timing of any insolvency event. However, Interserve currently estimates that under a reasonable worst case scenario its additional liability to construction completion in relation to such obligations would amount to approximately
The occurrence of any of these events could have a material adverse effect on the Group's business, results of operations and financial condition.
If the Deleveraging Plan, including the Placing and Open Offer, succeeds, existing Shareholders will experience significant dilution and there is a risk that the Group's "free float" will be materially reduced and that the Company's Shares will be delisted.
If the Deleveraging Plan, including the Placing and Open Offer, is completed, existing Shareholders (other than those who take-up their entitlement to Open Offer Shares pursuant to the Placing and Open Offer) will be substantially diluted. It is expected that the New Ordinary Shares issued pursuant to the Placing and Open Offer will constitute, in aggregate, 95 per cent. of the Company's Enlarged Issued Share Capital. Under the Listing Rules, the Company is required to maintain a "free float" of at least 25 per cent. Following the Placing and Open Offer, and based on the information available to the Company as at the Latest Practicable Date, it is expected that the Company's free float will be reduced from approximately 45.5 per cent(as at the Latest Practicable Date) to between approximately 45.5 per cent (assuming full take up of New Ordinary Shares by Qualifying Shareholders in the Open Offer) and approximately 9.4 per cent. (assuming that there is no take up of New Ordinary Shares by Qualifying Shareholders in the Open Offer).If, following completion of the Placing and Open Offer, the Company's free float falls below 25 per cent, the Company will need to apply formally to the FCA for a temporary modification of the requirement to maintain a free float of at least 25 per cent. Whilst the FCA has indicated that it would be minded to grant such a temporary modification to the Company for a period of twelve months from the date of completion of the Placing and Open Offer (even if there is no or a limited take up in the Open Offer),such modification will be conditional to the Company being able to demonstrate that the market in the Ordinary Shares will operate properly and that there will be sufficient liquidity. Such matters are outside of the control of the Company and there can be no assurance that the Company will be able to satisfy those requirements. If the Company were to be unable to satisfy the requirements imposed by the FCA, or to restore the free float within such period as the FCA may allow, it is possible that the Ordinary Shares would be suspended and/or that the Company would have to be de-listed, such that the Ordinary Shares would cease to trade on the London Stock Exchange. In these circumstances, Shareholders would lose the protection afforded by the Listing Rules and the liquidity of their investment would be materially adversely affected. Further, if there is no take-up or only a limited take-up by Qualifying Shareholders under the Open Offer, the Company believes that it is likely that one or more of the Lenders may requisition a Shareholders' meeting to vote on whether to cancel the Company's listing. Whilst all Shareholders would be entitled to vote on any such resolution, if more than 75 per cent of Shareholders voted in favour of such a resolution, the resolution would be passed and the Ordinary Shares would be de-listed. A cancellation of the Company's listing would significantly reduce the liquidity and marketability of the Ordinary Shares and could have a material adverse effect on the value of the Ordinary Shares.
Certain of the Group's contracts contain credit process termination clauses that may be triggered by the Deleveraging Plan.
The Group is a party to certain contracts and joint venture agreements that contain credit process termination provisions which may be triggered by the Deleveraging Plan. The Group has undertaken a detailed review of material contracts accounting in the year ended 31 December 2018 for approximately 46 per cent. Of Group revenue. Of these, approximately 83 per cent. are terminable in the event of a credit process involving the Company. The Company has prepared a detailed communication plan to consult with those counterparties following the posting of this announcement. Whilst the Group intends to seek consents and/or waivers in respect of such provisions where it determines it necessary, there can be no assurance that such consents and/or waivers will be obtained prior to implementation of the Deleveraging Plan, or that the Group has identified all contracts with credit process clauses that are material to its business. If the Group breaches such a credit process clause in any of its material contracts or in a number of contracts that are material to the business of Group and the relevant counterparty consent or waiver is not obtained, such counterparty may terminate, or threaten to terminate the contract, which could have a material adverse effect on the Group's business, results of operations and financial condition.
The Group has been negatively impacted by delayed payments in relation to its Saudi Support Services business.
As part of its international Support Services business, Interserve Learning & Employment ("ILE") operates International Training Colleges, a group of schools that provide vocational training courses for young adults in Saudi Arabia as part of the Saudi government's Vision 2030 programme.
Interserve Learning and Employment International had
Interserve is currently involved in discussions with the Client regarding the unpaid debt as well as the potential extension of ILE's contract with the Client. Interserve believes that, in due course, ILE will be paid for all of the sums due. This view was reinforced when ILE received
Interserve believes that it will be paid in full for all of the outstanding sums and that no bad debt provision is necessary at this stage. However, there can be no assurances that payments will be made in full to the Group, nor the timing thereof, which may be protracted. Recovery may require potentially costly and time consuming litigation, the results of which may be uncertain. In addition, any failure to reach a consensual resolution could potentially result in a dispute resulting in the possible termination of ILE's contracts with the Client and/or calls being made on applicable performance bonds. The occurrence of any of these events may have a material adverse effect on the Group's business, results of operations and financial condition.
The Company is under regulatory investigation by the FCA, which could have a material adverse effect on the Group's business, results of operations and financial condition.
As notified to the market on 11 May 2018, the Company is the subject of an investigation by the Enforcement Division of the Financial Conduct Authority in connection with the Company's handling of inside information and its market disclosures in relation to its exited EfW business during the period from 15 July 2016 to 20 February 2017. The Company is co-operating fully with the investigation. As with any regulatory investigation of this nature it is difficult to predict when the investigation will be completed or its outcome. If the FCA takes further action, members of the Group and/or their current or former directors or employees could face regulatory or compensatory sanctions, which could result in adverse publicity and/or reputational damage and which could have a material adverse effect on the Group's business, results of operations and financial condition.
The Company's 2017 Report and Accounts are under review by the Financial Reporting Council (the "FRC"), which could have a material adverse effect on the Group's business, results of operations and financial condition.
On 8 August 2018, the Company received a request for information from the FRC in relation to certain aspects of Interserve's 2017 annual report and accounts and the satisfaction of the corresponding reporting requirements. The Company is co-operating fully with the information request. As with any regulatory investigation of this nature it is difficult to predict when the investigation will be completed or its outcome. If the FRC takes further action, members of the Group and/or their current or former directors or employees could face regulatory sanctions, which could result in adverse publicity and/or reputational damage and which could have a material adverse effect on the Group's business, results of operations and financial condition.
Appendix 3
Defined Terms
|
"Admission" |
the admission of the New Ordinary Shares to be issued pursuant to the Placing and Open Offer to the premium listing segment of the Official List and to trading on the Main Market for listed securities of the London Stock Exchange; |
|
"Application Form" |
the personalised application form being sent to Qualifying Non-CREST Shareholders for use in connection with the Open Offer; |
|
"April 2018 Refinancing" |
has the meaning given to that term in paragraph 2.2 (Background to the Deleveraging Plan) in this announcement; |
|
"Board" |
the board of directors of the Company from time to time; |
|
"Bonding Providers" |
has the meaning given to that term in paragraph 3.1(b) (Existing Bonding Arrangements) of this announcement; |
|
"Canada" |
Canada, its provinces and territories and all areas under its jurisdiction and political subdivisions thereof; |
|
"certificated" or "in certificated form" |
a share or other security which is not in uncertificated form; |
|
"Closing Price" |
the closing, middle market quotation of an Ordinary Share on 26 February 2019 (being the latest practicable date prior to the announcement of the Deleveraging Plan), as published in the Daily Official List; |
|
"Commitment Letters" |
has the meaning given to that term in paragraph 2.4 (Deleveraging Plan) in this announcement; |
|
"Company" or "Interserve" |
the public limited company named Interserve plc with company number 88456 and with registered office address at Interserve House, Ruscombe Park, Twyford Reading, Berkshire RG10 9JU; |
|
"Companies Act" or the "Act" |
the UK Companies Act 2006 (as amended); |
|
"CREST" |
the UK-based system for the paperless settlement of trades in listed securities, of which Euroclear UK & Ireland is the operator; |
|
"Daily Official List" |
the daily record setting out the prices of all trades in shares and other securities conducted on the London Stock Exchange; |
|
"Deleveraging Plan" |
the financial restructuring proposed by the Company, as further described in paragraph 2.4 of this announcement (Deleveraging Plan); |
|
"Directors" |
the directors of the Company; |
|
"EBITDA" |
underlying profit before interest, tax, depreciation and amortisation; |
|
"Effective Date" |
the date on which the Deleveraging Plan becomes fully effective in accordance with its terms; |
|
"EfW" |
energy from waste; |
|
"Enlarged Issued Share Capital" |
the Existing Ordinary Shares together with the New Ordinary Shares to be issued pursuant to the Placing and Open Offer; |
|
"Euroclear UK & Ireland" |
Euroclear UK & Ireland Limited, the operator of CREST; |
|
"Excluded Territories" |
Australia, Canada, Japan, the Republic of South Africa, the United States and any other jurisdiction where the extension or availability of the Placing and Open Offer (and any other transaction contemplated thereby) would breach applicable law; |
|
"Existing Bonding Arrangements" |
has the meaning given to that term in paragraph 3.1(b) (Existing Bonding Arrangements) in this announcement; |
|
"Existing Cash Financing Arrangements" |
has the meaning given to that term in paragraph 3.1(a) (Existing Cash Financing Structure) in this announcement; |
|
"Existing Financing Arrangements" |
the Existing Bonding Arrangements together with the Existing Cash Financing Arrangements; |
|
"Existing Obligors" |
original borrowers and original guarantors under the Super Senior Instrument Facility, save for any entities that cease to be obligors since the April 2018 Refinancing; |
|
"Existing Ordinary Shares" |
the Ordinary Shares in issue at the date of this announcement; |
|
"FCA" |
the UK Financial Conduct Authority; |
|
"Form of Proxy" |
the form of proxy for use in connection with the General Meeting; |
|
"FSMA" |
the UK Financial Services and Markets Act 2000 (as amended); |
|
"General Meeting" |
the extraordinary general meeting of the Company to be held at The Broadgate Suite, ETC Venues, 155 Broadgate, Liverpool Street, London EC2M 3YD on 15 March 2019 at 11.00 a.m.; |
|
"Group" |
the Company and its subsidiaries and subsidiary undertakings from time to time; |
|
"IGHL" |
Interserve Group Holdings Limited; |
|
"IHL" |
Interserve Holdings Limited; |
|
"IHL Facility" |
has the meaning given to that term in paragraph 3.2 (New Cash Financing Arrangements) in this announcement; |
|
"Intercreditor Agreement" |
has the meaning given to that term in paragraph 3.1(f) (Priorities) in this announcement; |
|
"Interserve Group" |
the Group excluding RMDK; |
|
"Issue Price" |
|
|
"Japan" |
Japan, its territories and possessions and any areas subject to its jurisdiction; |
|
"Latest Practicable Date" |
26 February 2019, being the latest practicable date prior to the publication of this announcement; |
|
"Lenders" |
has the meaning given to that term in paragraph 3.1(a) (Existing Cash Financing Arrangements) in this announcement; |
|
"London Stock Exchange" |
London Stock Exchange plc; |
|
"Main Market" |
the London Stock Exchange's main market for listed securities; |
|
"New Bonding Arrangements" |
the new bonding arrangements described in paragraph 3.6 (New Bonding Arrangements) in this announcement; |
|
"New Cash Financing Arrangements" |
the new cash financing arrangements described in paragraph 3.2 (New Cash Financing Arrangements) in this announcement; |
|
"New Ordinary Shares" |
the 2,844,678,822 new Ordinary Shares to be issued by the Company pursuant to the Placing and Open Offer; |
|
"New Super Senior Facility" |
has the meaning given to that term in paragraph 3.2 (New Cash Financing Arrangements) in this announcement; |
|
"Official List" |
the Official List maintained by the FCA; |
|
"Open Offer" |
the offer to Qualifying Shareholders constituting an invitation to apply for the Open Offer Shares on the terms and subject to the conditions set out in the Combined Prospectus and Circular, and in the case of Qualifying Non-CREST Shareholders, the Application Form; |
|
"Open Offer Entitlements" |
an entitlement of a Qualifying Shareholder to apply for 19 Open Offer Share for every 1 Existing Ordinary Share held by him or her on the Record Date pursuant to the Open Offer; |
|
"Open Offer Shares" |
the New Ordinary Shares to be offered to Qualifying Shareholders pursuant to the Open Offer and to the Senior Cash Facility Lenders pursuant to the Placing; |
|
"Ordinary Shares" |
the ordinary shares of |
|
"Override Agreement" |
has the meaning given to that term in paragraph 3.1(c) (Override Agreement) in this announcement; |
|
"Pension Restructuring" |
has the meaning given to that term in paragraph 3.5 (Pension Restructuring) in this announcement; |
|
"Pension Scheme" |
the Interserve Pension Scheme established by deed dated 30 June 1955 and currently governed by a definitive deed and rules, a copy of which is attached to a deed of amendment dated 31 August 2017, which (as amended) currently governs the Interserve Pension Scheme; |
|
"Pension Trustee" |
Interserve Trustees Limited in its capacity as trustee of the Pension Scheme; |
|
"PIK" |
payment in kind; |
|
"Placing" |
the conditional placing of the Open Offer Shares with the Senior Cash Facility Lenders, subject to clawback to satisfy valid applications by Qualifying Shareholders under the Open Offer; |
|
"Placing and the Open Offer" |
the Placing and the Open Offer; |
|
"Prospectus Rules" |
the Prospectus Rules of the FCA made under Part VI of the FSMA; |
|
"Qualifying CREST Shareholders" |
Qualifying Shareholders whose Ordinary Shares on the register of members of the Company at 6.00 p.m. on the Record Date are in uncertificated form; |
|
"Qualifying Non-CREST Shareholders" |
Qualifying Shareholders whose Ordinary Shares on the register of members of the Company at 6.00 p.m. on the Record Date are in certificated form; |
|
"Qualifying Shareholders" |
holders of Existing Ordinary Shares on the register of members of the Company at 6.00 p.m. on the Record Date; |
|
"RCF" |
revolving credit facility(ies); |
|
"Record Date" |
6.00 p.m. on 25 February 2019; |
|
"Resolution" |
the resolution set out in the notice of General Meeting found in the Combined Prospectus and Circular; |
|
"Restructuring Documents" |
the principal documentation to be entered into to give effect to the Deleveraging Plan; |
|
"RMDK" |
RMDK Kwikform; |
|
"RMDK FinCo Facility" |
has the meaning given to that term in paragraph 3.2 (New Cash Financing Arrangements) in this announcement; |
|
"Senior Cash Facilities" |
the Senior RCF Facilities and the USPP Notes; |
|
"Senior Cash Facility Lenders" |
the USPP Holders and the Senior RCF Lenders; |
|
"Senior RCF Facilities" |
means, together, the syndicated revolving credit facilities and the four bilateral revolving credit facilities described at paragraph 3.1(a) (Existing Cash Financing Structure) in this announcement; |
|
"Senior RCF Lenders" |
has the meaning given to that term in paragraph 3.1(a) (Existing Cash Financing Arrangements) in this announcement; |
|
"Shareholders" |
the holders of Ordinary Shares in the capital of the Company; |
|
"Sponsor" or "Numis" |
Numis Securities Limited; |
|
"Super Senior Instrument Facility" |
the committed bonding facility described in paragraph 3.1(b) (Existing Bonding Arrangements) of this announcement; |
|
"Super Senior Instrument Facility Lenders" |
has the meaning given to that term in paragraph 3.1(b) (Existing Bonding Arrangements) of this announcement; |
|
"Super Senior Term Loan Facilities" |
the term loan facilities described in paragraph 3.1(a) (Existing Cash Financing Arrangements) in this announcement; |
|
"Super Senior Term Loan Lenders" |
has the meaning given to that term in paragraph 3.1(a) (Existing Cash Financing Arrangements) in this announcement; |
|
"uncertificated" or "uncertificated form" |
a share or other security title to which is recorded in the relevant register of the share or other security concerned as being held in uncertificated form (i.e. CREST) and title to which may be transferred by using CREST; |
|
"United Kingdom" or "UK" |
the United Kingdom of Great Britain and Northern Ireland; |
|
"United States" or "US" |
the United States of America, its territories and possessions, any state of the United States of America, and the District of Columbia; |
|
"USPP Holders" |
has the meaning given to that term in paragraph 3.1(a)(iii) (Existing Cash Financing Arrangements) in this announcement; |
|
"USPP Notes" |
the notes described at paragraph 3.1(a)(iii) (Existing Cash Financing Arrangements) in this announcement; |
|
"$" or "US$" or "US dollars" |
US dollars, the lawful currency of the United States; |
|
"Warrants" |
the warrants issued by the Company pursuant to the Warrant Instrument as described in paragraph 3.1(g) (Warrants) in this announcement; |
|
"Warrant Holders" |
persons in whose name a Warrant is registered in the register of Warrant Holders maintained on behalf of the Company; |
|
"Warrant Instrument" |
the warrant instrument executed by the Company dated 27 April 2018; |
|
"Warrant Shares" |
the Ordinary Shares issued or to be issued to Warrant Holders from time to time pursuant to the Warrant Instrument subject to adjustment as provided in the Warrant Instrument; and |
|
"£" or "pounds sterling" or "sterling" or "GBP" |
pounds sterling, the lawful currency of the United Kingdom. |
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