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Do we have a workable deal here?
Coltrane are proposals means there will be 1.5bn shares in circulation of which 65% will be owned by the lenders to wiped out 436m debt. This suggests 975m shares will be issued at 45p a share to the lenders.
However they then propose a rights isssue that will issue 375m shares at 20p raising 75m for the coffers. Now I’m guessed by the banks will object to this, since they will argue shareholders are getting a better deal the lenders ironically. They will also be making a paper loss of 90m since the share price will be around 34p post d4E.
Now are the savings facts:
.the banks “write off” 44m less than they would have under their plan.
.they will not have to provide the additional 75m liquidity required
.everyone wants a conseual deal
Although the banks have theartened administration, there seems to be relunctancy to do this for the following reason:
. Joint partners in the Middle East may about JVs at a discount
. Reputations damage to the company
. Some of Interserve’s contracts holding bonding agreements that stipulate IRVs insurers will payout the client a significant sum should the company go into administration. The insurance policies that will need to pay out under these conditions are the same insurance arms of a number of the lending banks, so I can see some of the lenders pressuring other lenders to avoid administration at all costs as they will actually paying and loosing even more money.
Bill - Do we have a workable deal here?
Firstly, my calculations are similar to yours. Based on this statement "Coltrane’s proposal would give only 65 per cent of the company to creditors, in exchange for £436 million of debt, providing shareholders with 10 per cent of the share capital as opposed to 2.5 per cent, and the opportunity to participate in a 25 per cent rights issue worth £75 million."
I understand this to mean :
Lenders get 975m shares @ 44.7p = £436m
Existing shareholders get 150m shares @ 44.7p = £67m
Coltrane through RI get 375m shares but not @ 44.7p which would = £167m
They offer these shares at a 65% discount at 20p per share = £75m
The total post DfE value of Interserve = £578m
Divide by 1.5bn shares = post Dfe SP of 38.5p
Lenders take a 6.2p per share hit by 975m shares = just over £60m (unless they partake in the RI, that could reduce this)
Debt converted = £755M less 436m = £319M remaining DEBT (possible put on RMD - less than the original £350m plan)
The debt could be reduced further using the RI £75m) = £244m debt but I suspect Interserve want this as cashflow.
It all appears to stack except, I think the Lenders will play hard ball - I do think a pre-pack administration is an empty threat, where everyone including the Lenders lose.
But I expect the Lenders / Coltrane will negotiate something in between - possibly 7.5% for existing shareholders
Without doing the exact calcs, I guess this would leave the SP in the region of 33p (twice what it currently is).......
Lets hope Coltrane push it through - in reality the Lenders will get every penny back when the SP rises by 6p after the DfE with low debt, EfW behind them, EBITDA of £170m to £175m, £3bn annual turnover and £7bn forward secured.
I did initially consider they would take part in the rights issue, but that would still leave them with an average @39.8p.
Based on the their holdings they would be entitled to to purchase 243750000 share @20p which gives a total of £48.75m. Add this to the original 436m gives you a total 484.7m which is more or less the original figure in the proposed d4e swap. However the lenders now own 81.3% of IRV for their £480m as opposed to the proposed 97.5, but they still are in control of the company as the hold the majority of shares.
Personally I think this is a sensible outcome for everyone involved including the lenders, but just depends if they are willing to give an extra 14% of the company away, as well as take the a “hit” on the share price. I don’t think it’s worth a pre pack deal for the sake of 14%, since they will have to pay administrators cost, possible risks of JVs being bought out at a silly value as well as having to pay clients.
So they would still be loosing 1p a share after the rights issue. Also how are you getting a d4e value If 578m?
The lenders could take up 65% of the RI as you state = £48.75m which equals 243.75M share.
The lenders average is then :
243.75M @ 20p
and
975M @ 44.7p
Lenders Average = 39.8p versus 38.5p (post DfE SP), so yes the Lenders would initially be down by 1.3p × 1219M =£15.8
The post DfE valuation is just the value applied to the shares at the point of DfE - £436m (lenders shares) + £67M (ex. Shareholders) + £75M ( RI).
Agree it would be the Lenders who would be cutting off their nose .......if they reject this deal!
Hopefully they have some common sense. As they will now be equity holders as opposed to debt holders, fluctuation is part of the package just like what’s happened to us. Just because they will want the value of their stake to equal exactly the amonut of debt they will reduce now, this does mean the sp will not go below this price. It will just take one bad trading update.
If the lenders end up holding 81% of the shares, they will to a certain extent be able to control the price of the SP even if there was a poor trading update in the future. Over time they would recover all their investment and a profit.
The only problem being is that banks don't like holding shares in private companies, as it can affect trading with other Businesses (possible competitors)in the same sectors.
Very interesting and really significant that Coltrane have confirmed that they will underwrite the £75m Rights Issue proposal.
This puts the Lenders really on the back foot.
The lenders main negotiation was playing "hard ball" and posturing with EY scaremongering about a Pre-pack Admin and stating they would demand £66m immediately if their deal was not agreed,
But in reality, Coltrane have called their bluff - they would just purchase £75m shares at 20p (or less) and the £66m would get paid off. Leaving Coltrane with time and an even stronger position to call the shots.
The Lenders will be forced into a reasonable deal now - fair play to Coltrane for putting their money up!
Coltrane were correct the 2.5% (ex. shareholder deal) was really "obscene",
Better days ahead for Interserve.