Member Info for CC2015

My views about Clients and Suppliers.

It takes me about 2 minutes to work out the following. the supply chain will do the same.

The Chairman has stated IRV will run out of money by the end of the week. On Friday regardless of vote IRV gets an additional £75m cash.

IRV turns over £2.7m or £225m a month, so between 18th and 31st March it will get £112m of incoming cash (assuming flat profile- I suspect it's lower than this as cash tends to come in during the first 7 days of the month but let's put that aside).

The wage bill at the end of the month will have to paid. Let's assume 50% of their costs are staff wages (someone could get a better number I'm sure), so that's £112m to be paid out by the end of the month.

So, assuming they don't pay any suppliers between Friday 15th and end of the month they end up with £75m+112m-112m = £75m. but if we assume they do pay suppliers and it's 50% of their costs, that will cost £225/2/2= £56m (again flat profile won't be correct as alot of payments will flow into the first few days of the month)

Which will leave £75m-£56m=£19m in the bank. Not very much. Doesn't inspire confidence. And that's the problem. If the bondholders want to stabilise the supply chain they have to come up with more than £75m, far more.

Of course, given enough time if IRV continues to make £93m EBITDA and the interest bill is cut on Friday, it's cash position will gradually improve, but very slowly and only if the working capital position remains constant, which requires the supply chain to be willing to do business with them

The real question is whether suppliers will continue to work for IRV regardless of successful vote or not.

And whether Clients will give them new business.

If not this all kicks the can down the road another year and we will be back here again.

Meta - I'd say that the employees shares are held in some form of nominee and the holder wants to know which way they are going to vote by close of play today.

Which is a bit out of order since the vote isn't until the 15th and the last time for receipt of proxy votes is 6pm on 13th March.

Looks like someone just dumped 2.7m shares... so price may stabilise now.

There must be something going on we don't understand Meta. For at 16p anyone buying today will not be entitled to take part in the OO so they are going to get diluted to oblivion. Of course one may argue that in return for this IRV will have wiped out £480m of debt but I just don't see how the numbers stack up.

Perhaps there is 'hot' money in IRV. Just traders who will close out in the next week or people taking a punt who don't really understand what is going on.

Thanks pbody. I am waiting until the share price becomes completely distressed. say around 3-5p. Of course I may never get the chance as at the moment it looks to me like the bondholders have the upper hand and I don't want to be holding unless I'm sure it won't get de-listed.

I am expecting a run of sellers as we approach the bondholder offer vote from those who would rather take some money as opposed to getting diluted to oblivion or getting zero in a pre-pack

1. Agreed
2. Agreed
3. Or IRV could continue to lose money as turnaround not well executed and share price heads down
4. same as 4
5. Coltrane can't increase their stake about 30% unless they make a bid for IRV. But concert party agreed. But if make a bid bondholders won't write off debt (why should they). So this looks impossible but see 6.
6. A white knight appears and disrupts the pre-pack and makes a better offer to the administrator than the bondholders have. White knight would require a £1b funding line at say 5% interest to make this work. Very very unlikely
7. A white knight appears and disrupts pre-pack by bidding for only parts of IRV. Also very very unlikely
8. Coltrane take legal action to delay pre-pack (not sure if this is possible) and things get really really messy.

Many of the financial websites source their data from the same place. often Morningstar or Factset. If you do this day in day out like it becomes apparent there are very many mistakes on these sites.
I suspect (but do not know) that much of the data entered into these central databases is done by very junior staff not paid very much. I suggest this as some of the mistakes are so bad they should be picked up immediately but often aren't for months.

So, I find it's always best to go back to the source documents, which are the annual report and the RNS feeds.

I repeat the company cannot issue new shares without informing the market and this is done through an RNS. so, no the warrants cannot have been issued because we've seen no RNS. (Further, if you read the deleveraging plan you will see the lenders have agreed not to convert them during the period where their offer is active).

If you guys feel really strongly about it you could contact IRV investor relations for clarification.

Yes a mistake. Directors cannot issue 1 share yet alone 60m shares without telling the market.

Where do you source this information that the shares have gone up to 210m? The year end accounts published only a week ago show 148m. Even if you add in the warrants you get 182m

A source close to Coltrane told City A.M.: “This is a disappointing response. We have made clear to the company our desire for constructive discussions and a consensual outcome. Of course we will need to speak to lenders, but we need first to understand the company’s views on our proposal - and the board have a duty to consider it, which they are currently failing to fulfil.

“We have offered to make our proposal binding, subject to diligence - but need the company to be more forthcoming with information for that to happen. The only way to achieve a consensual outcome is for the board to take their responsibilities seriously, and engage with us on our manifestly better proposal.”

Bit bizarre this: Coltrane don't consent to share the plan with the lenders, bonding providers, pension trustees etc. I've never seen anything like this before

The Coltrane Proposal requires the consent of the lenders, bonding providers and Pension Trustee to be capable of implementation. The Board has asked Coltrane for its consent to share the Coltrane Proposal with these parties and their advisors, but this request has been refused despite the fact that the key terms of their proposal have been made public by Coltrane. The ability to obtain lender support for a materially different deal requiring lenders to take significantly larger write offs, or provide ongoing support, in the short time frame available is therefore unknown.

The Coltrane Proposal requires that the Board immediately halt the implementation of the Deleveraging Plan that was launched on 27 February 2019 and that is subject to shareholder approval on 15 March 2019. In light of the Company's short-term liquidity requirements and given that Interserve's Deleveraging Plan is currently the only fully funded proposal which has the agreement of lenders, bonding providers and Pension Trustee, the Board is unable to consent to this request without risking the future of Interserve together with its employees, pensioners, customers and suppliers.

The Board also notes that the Coltrane Proposal is non-binding and unfunded and remains subject to due diligence. There is therefore no certainty that Coltrane's proposal could be successfully implemented.

The Board will be providing more detailed feedback to Coltrane on its proposal today and confirms that the Board remains open to considering any proposal which provides liquidity and a deleveraging solution that is capable of implementation in the time frame available.

However, the Board continues to recommend that shareholders vote in favour of the Deleveraging Plan, which 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 for the business.

it's not FTSE250. It's not even FTSE Small Cap.

it's FTSE Fledgling now and there's nowhere to go below that.

Whilst I'm usually taken to writing long posts I'll try and keep it short. I think Coltrane have lost the plot here.

their stake worth £6m (less with dilution from the warrants). To defend their stake of £6m, they are underwriting a £110m rights issue and offering a £75m bridging loan. The numbers are out of all proportion. their risk/reward calculator must look different than mine.

Can anyone explain the share price.

Option 1. The lenders deal is approved. Debt gets written off and lenders own 95%. Shares will continue to trade for a while but most likely company gets de-listed. Remaining shareholders cannot sell shares and further are at the mercy of the lenders who can bill it for all sorts of management costs

Option 2. Deal not approved. Outcome pre-pack. Shares worth zero and company de-lists.

Option 2. What is option 3 then as I can't see why share price should be 16p? Suggests shares trading at a premium as market thinks Coltrane will force a higher offer?

There's another item to add to the mix here. From what I've read the lenders aren't all in alignment. It's not hard to see why. There are about five lenders which range from RBS who will be very concerned about computational damage to Emerald and Kempner who won't care.

Please don't forget that IRV is losing money. £245m in 2017, reducing to £110m in 2018. £110m is a huge number compared with £2,900m turnover and the £110m was after around £60m (look it up) one off benefit from the pension scheme.
£160m cash was put in in April 2018 to save the company and now depending on which scheme you look at, they are going to get another £75-110m. Who is going to keep giving them cash if they make losses year after year? of course we can debate whether the exceptional costs are really exceptional costs and whether they will cease or not. Sure, some of them will, but they seem to be becoming the norm and if you read the deleveraging plan you will see there remains considerable risk there will be further exceptional's. Sure, some of these risks will not occur but to suggest none of them will would be foolish.

So, where do we go from here. The Coltrane plan leaves the company with a cash injection and reduced interest such that EBITDA is capable of paying off the debt. It looks do-able to me, but is reliant on the bond-holders agreeing to it and why should they, they have their own objectives. The bondholder plan looks do-able too and certainly there would advantages of taking it private (which it appears there is conflict between the bond-holders on). Taking it private would remove the scrutiny and reduce some of these crazy adviser costs to nearly zero, producing significantly more cash to pay off the debt. I suspect the bond-holders would bleed IRV dry though, wind down construction over time, sell everything they can except RMDK. It won't the same IRV in 5 years time, maybe half the size it is now. Not very nice for the employees but at least they will have time to decide what they want to do.

So, the question remains. The Coltrane plan isn't a plan unless the bondholders agree to write off their debt and Coltrane cannot make them only suggest it to them. If you take the view that Emerald and Kempner's objective is gain total control of IRV, Coltrane's offer is of no interest to them.

Then the second question becomes, is the pre-pack a real option and I am not skilled enough to comment. It looks fraught will legal challenge to me, but I'm sure the bond-holders have done their research.

In the end game here the bondholders appear to hold most of the cards. Doesn't look pretty for shareholders even if Coltrane do secure a better deal as however you look at it IRV is losing money year on year.

Your forget something Meta. It's in a long term downtrend too...

There is no support, no resistance, no moving averages, nothing to assist even the most experienced analyst in picking the right entry point.

Further every Coltrane and Emerald continue arguing over this, the less there is to save. Every day they deliberate is another day Clients aren't giving them work and another day where sub-contractors will be demanding improved credit terms.

Net debt end Dec £630m, net debt today £730m. All their credit lines drawn. The two of them need to sort it out.

They haven't just spent £75m on advisers. that's the total of the April 2018 advisers and the bit they've spend recently on this round. I think (it's in the deleveraging plan published yesterday) they've spent around £13m in the last couple of months on advisers and see themselves spending around another £20m to complete this funding round.

Pundit1. Their is a clause in the loan agreements that if the CEO and FD are removed then IRV is due to pay a sum of money to the bond-holders. it was in the Press. I think a sum of £10m was mooted (please check this figure I may not be right on this). I'm not sure if this is each for the two of them or whether there are further clauses in the loan agreement.

This would have been put in place in April 2018 and whilst it appears IRV and the directors have done nothing legally wrong by not declaring it, to me it feels morally wrong. And thus my views on whether the Directors are showing bias whether unconscious or not.

Thanks Kenj for your research of the meeting dates. It's really helpful.

I am remain, let me say concerned about the Board here. Their major shareholder, calls a meeting and the Board have more or less dragged the timing out to the longest possible time. Clearly they are entitled to do this. However, it doesn't seem to be doing anything to work with their biggest shareholder, more frustrate the process. And this I suspect is the problem. Are the Board acting in a way which is too skewed towards the bondholders. They may be legally within their rights but it seems to do nothing but annoy Coltrane. Of course their Board membership and the jobs of their colleagues are at risk and that may be introducing unconscious bias towards the bondholders

One other thought for you Feileb. Coltrane cannot buy more than 29.9% without making a bid for the company so in order to introduce more leverage they need another party to get them up to 50%.

Bill, As you held the shares on the date the rights were allocated you are entitled to buy them in the OO.

So, yes you are entirely correct you can buy them back cheaper. Further you can leave it to a few hours before the deadline to decide whether you want to or not, so if the price drops below 15.3p you can buy them in the market cheaper.

Kenj, The point of acting as a concert party holding in excess of 51% of the shares, is that the Board are responsible to the shareholders. The Board were asked for an EGM by Coltrane. Under LSE rules, this has to take place within 20 days. The date proposed by IRV exceeds this. Maybe this was with Coltrane's agreement, maybe not. If I were a shareholder I would be quite concerned about the actions of the directors and the conflict of interest which has only been recently declared around their employment contract.

Coltrane's proposal is not that much different to the lenders. One offers £75m cash injection, the other £110m. To reject it out of hand without seeming to fully engage (according to what Coltrane says in the press ) seems odd. All imho you understand.

The questions remains. Who is buying? any why? I don't personally believe it's Coltrane putting a concert party together. I think there's something deeper going on.

Meta, - Perhaps someone is trying to scoop up 24% to add to Coltrane's 27% or a bit less if Farringdon are in league with Coltrane.

Or perhaps it's just a number of parties on the wrong side of the trade who wanted out at any price.

The document more or less says the risk of de-listing is not just a risk but one of the debtors is likely to do so.

The issue IRV can't get away from is that they lost £110m in the year and however the great the EBITDA looks, there still appear to be further unresolved significant risks at the operational level. Staff morale must be terrible leading to potential further cock-ups.