Government contractor Interserve seeks rescue deal

One of the biggest outsourcing firms serving the government is seeking a second rescue deal this year as it looks to avoid a Carillion-style collapse.

Interserve provides meals for schools and hospitals, constructs and maintains government buildings and provides a string of other services. It employs 45,000 people in the UK, with 70% of its £3.2 billion annual turnover coming from government contracts.

Its recent troubles have been blamed on cancellations and delays in its construction contracts as well as struggling waste-to-energy projects in Derby and Glasgow.

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Despite a rescue deal agreed with banks back in March, debts of have continued to rise to between £625 million and £650 million by the end of the year. By comparison, the company only has a market capitalisation of £36.7 million after its share price dropped 80% in twelve months to a 30-year-low.

A new rescue package for Interserve, which could see creditors take control of the group, “has gained added urgency as clients hold back from awarding fresh contracts and nervous suppliers and workers demand payment upfront” says The Times.

The Financial Times has reported that the company was looking for a deal to refinance its debt which would mean lenders taking a significant loss, while public shareholders would be “virtually wiped out”.

The plight of Interserve raises worrying comparisons with outsourcing and contracting giant, Carillion, which collapsed at the turn of the year, owing more than £1 billion to lenders and suppliers and with £2.6 billion of pension liabilities.

Following Carillion’s collapse, the government launched a pilot of “living wills” for contractors, The BBC reports, so that critical services can be taken over in the event of a crisis. Interserve is one of five suppliers taking part.

Claiming “the Tories’ outsourcing and privatisation obsession is putting our public services and taxpayers’ money at risk”, Labour’s shadow Cabinet Office minister, Jon Trickett, told the Express and Star: “The Government has once again dropped the ball on outsourcing and it's the public who will suffer.”

“Less than two weeks ago, I asked the Government what extraordinary steps they are taking to monitor the financial health of Interserve. They told me they 'do not believe that any strategic supplier is in a similar situation to Carillion', and in November Interserve continued to win public sector contracts worth millions, despite effectively being insolvent” he said.