Member Info for CC2015

I hope some of you note the use of the OO and not a RI as was discussed some time ago on here, the difference being you can't sell your rights in the market. Shareholders shafted again.

However, whilst the deal does look horrendous to me, the share price certainly doesn't reflect that. that's alot of shares changing hands today

My apologies. those buying today do not of course have rights to the OO.

The thing is whatever we (or I) think the share price is well above the OO price implying there is support for the OO. I'm not sure why.

it implies people are really keen to buy 1 share at 18.5p and then another 19 at 15.3p

is this a market aberration and it will look different in a week? Do Coltrane have cards up their sleeve? Do people think the lenders will be forced to make a better offer?

All a puzzle to me.

This is my guess. All conjecture. Company taken private and de-listed. Shareholders can choose to stay in if they wish and not get diluted.

But, since the major shareholders will be the same as the lenders where do you think their interests will lie?

Anyways, take private and de-list, follow by reduce turnover by 15% per year in everything except RMDK. Flog anything you can which is not RMDK. Government continue feeding them work on a reducing basis in knowledge their exposure is dropping year on year.

In four years rebrand and then a year later re-float when stabilised. (CEO and FD then retire or carry on an earn-out basis for a couple more years).

A good outcome for all except the shareholders

I've just read the whole deleveraging plan and imho the shares should be trading below 10p right now because there appears significant risk shareholders will end up owning shares in a de-listed company.

But hey what do I know, the share price hit 24p earlier and clearly those in the know who were buying this on leaked news (or just jumping on the trend) think differently.

I struggle to see how Coltrane can pull a rabbit out of the hat here (and tbh why they would bother given their shareholding is worth only £7m) but let's watch and learn.

I'm going for my morning walk now. Anything could happen by the time I get back

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 GBP75 million worth of new equity to Shareholders in an offer fully underwritten by Coltrane, together with a very significant conversion of Group debt into equity.

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.

Interesting...

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 GBP15 million to advisers associated with the deleveraging transaction (expected to total approximately GBP33 million), a further deterioration in the Middle East relating to receivables for Support Services and RMDK of approximately GBP25 million, Energy from Waste payments of GBP11 million and a VAT payment of GBP18 million paid post year end, which in aggregate represent a deterioration of approximately GBP107 million. These items as well as an updated expectation with respect to the EfW projects have driven the requirement for new liquidity within the Group and the Lenders agreeing to provide a further facility of GBP110 million as part of the Deleveraging Plan. If the Resolution to approve the Deleveraging Plan is not passed on 15 March 2019, the Group 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.

Ouch. So, net net debt now stands at £738m. And what are they doing paying VAT post year end? window dressing I guess.

And this nugget is presumably why the Directors aren't taking up any shares.

They save the company, jobs for the employees, the taxpayer a bundle but shareholders get completely shafted.

I'd say Coltrane will not be happy

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.

Would you take up the offer if there is a likelihood of delisting?

biggest nugget is perhaps Directors aren't taking up the open offer. not even Debbie White. Not even say £30k worth to persuade the market it's a good deal long term. Says it all about the terms of the offer really.

I think the market will react in the usual way. First enthusiasm, then realisation once they dissect the detail, then the share price starts to trend to 15.3p as everyone realises it's an open offer not a rights issue.

Then Coltrane stick their oar in and say it's not good enough and concerns arise again that the placing wont' get approved.

I'd say the bondholders continue to be too greedy and are not taking enough pain but that's the nature of this sort of situation.

The EBITDA covenant discussion occurs because IRV now say covenant calculations only include cash pay instruments. That's a new one on me. if you include the non-cash pay it doubles.

Funny that. £92.3m operating profit vs market expectation of £93m. Not any of the other numbers some on here kept suggesting over and over.

but you can't get away from loss for the year of £113m and further exceptional losses in construction, meaning the headline number looks good but they continue to post extraordinary losses below the line.

Hi Feileb, I'll try a different way.

Gross debt =£830m. Write off £480m = £350m

Net debt = £830m-194m = £636m,=. Write off 480m = £156m

Covenant ratios are calculated on net debt not gross debt. Therefore predicted EBITDA based on x2 = £78m which would fit with market expectations of £93m.

The £194m is sourced from the interims. It will of course have moved.

I stand by the insurance timing by would be happy to be corrected. My understanding is that total receipts would be around £54m and that half was received in 2018. I have sight of an email from the FD on this. This means only £27m can be received in 2019

Feileb,

I am becoming concerned about balance here. You have stated a number of times that you believe the EBITDA to be around £175m and you have provided calculations. However, you did you respond to my previous point about what is and what is not included in the calculation and the lenders wishing to present it in the best possible way.

For clarity market expectations for 2017 are an EBITDA of £93m. To suggest the company is going to deliver twice this for the year when they made only £40m in the first half is fanciful. That would suggest £135m for the second half, something material enough the management would be shouting about it. That's an average margin of 6% for the full year or 9% for the second half. Even 6% on average would put IRV as leading in class in it's sector. No other company achieves 6% or anything close to it.

I'm sorry but however much you want to believe your figures they don't add up.

Next I move to the "it's a short term cash problem". Well in some respects you are right but in others not. The challenge here is that the FD wants the EBITDA to be as high as possible to keep market confidence and has done so by loading up the exceptional costs. How many of these are really exceptional because it seems to me some of them appear to be "let's go find every job that's losing money and count it as exceptional". It's no good making lots of EBITDA if every year for some reason or other there's a new exceptional cost.

Finally I wish to put you right on the timing of the insurance payment. They will not receive it all this year as around half (£30m ish) was paid in December (i.e. before they defaulted on the January £50m debt repayment). How much will they get for EfW - well again every day that ticks by is less the Client will pay due to clauses in the contracts. I do not dispute there may be money due here but extracting it from Clients may not be as simple as just submitting an invoice.

Finally they have another "short term cash flow" problem coming up - settlement of the account with Viridor where they claim they are owed £60m ish. How much EBITDA is that going to eat up?

I suggest the situation is nowhere near as rosy as you paint but I wish you luck with your trade. The situation is so volatile and difficult to predict the share price could well go up as well as down.

They don't even need another 17% Bill. They only need 50% of the votes cast. Thus I suggest why Sky are running this story. One wonders who is giving Sky the information (it must be either the lenders or one of the Board)

Brightsphere short position down again today. Less than a million left for them to buy back now!

tbh Bill I'm not sure if it's legal or not (as opposed to morally wrong which it clearly is). My view is:

1. If a company doesn't meet it's covenant agreements then debts become immediately payable so whether the Board pointed that out or not isn't relevant, an investor will be judged to have known that

2. The situation regarding Mark Whiteling and Debbie White is more interesting. I would have though it prudent to put this in the annual accounts to avoid any accusation of conflict of interest, after all the Board approved the loan and to have clauses related to individuals is rather unusual. Of course whether it is prudent or morally correct is completely different to whether it is illegal or not. I would be pretty sure it's not illegal as then Debbie and Mark would have become personally liable by not declaring it and they are far too experienced to leave themselves open to that.

Finally, I note it's now been a week since Coltrane's intervention. Their RNS came out 10 minutes after the IRV statement. Surely shareholders deserve more than a "Interserve declined to comment" on the Sky news piece.

Well, this is beginning to look a complete mess. One wonders what other clauses are inserted in the March 2018 refinancing deal which are not in the public domain and whether any of them are price sensitive.

I suspect things are going to get really ugly now with Coltrane throwing their dummy repeatedly.

One wonders how many shareholders are going to take Coltrane's approach of their loss of £5m compared with the debt holders potential loss of £800m is such that they would rather roll the dice and maybe get zero rather than be screwed over .

Oh btw I spent time puzzling over the £75m cash injection as it seemed too high and out of character for the lenders. I now see that all this does is allow IRV to repay the £50m that was due the end of January which got deferred to the end of April. Or at least that's how I see it.

460k shares traded today. And a bunch of those will be O converting into AT, so call it 300k = £36k total volume. Peanuts. Day-traders won't be interested, Insufficient liquidity.

ok, so I suggest the net debt is mostly rising because suppliers won't work for them unless it's either cash up front or short credit terms. Further if for example you're a wholesaler if you don't get paid on time you simply stop supplying.

Net debt may also be rising because they can't get the EfW handed over but I suspect the build costs are now neglible and it's more about commissioning engineers trying to get the plant handed over. Probably only a small impact

then you will have customers who are examining every invoice and not paying unless they are absolutely sure IRV have completed the work set out on the invoice. In the middle east this could be particularly problematic.

With regard to the EBITDA, I'm trying to show by triangulation with other facts that £182m can't be right. I think we all agree that. Which means the covenant calculation being used by the Board/Bondholders add and excludes all sorts of things from EBITDA which you and me would call EBITDA. In other words the facts are being presented to fulfil an objective and the actual position is worse.

I think we also need to be careful around the window dressing on the net debt number because for sure this is going to be alot lower than the average net debt number.

If you run with IRV is left with £350m debt in RMDK, plus another £75m less the £60m cash that's going to be left in the rest (what's that all about?? well I think I understand but if I carry on this post will hit the 3000 limit). Plus say a gap of £75m between average net debt and reported debt = £440m.

Given broker forecast of £92m EBITDA this year, that a covenant ratio of 4.78. I think possibly the £350m is gross debt not net debt as some of their cash is ringfenced for the joint ventures but even then I don't see how we get a covenant anywhere near 2 even if I ignore my concern around the net debt position

Unless.... By putting in the extra £75m this stabilises the supply chain and then they can get credit which means they don't need the £75m at all!

The real question we need to answer is what impact is the lack of confidence in the supply chain having on margins. Because suppliers put prices up if they are worried they won't get paid. And IRV margins are so thin that's going to be a problem.

Hmm. The EBITDA can't be £182m because if it was IRV would have told the market in a trading update and then none of this deleveraging would be necessary. They would also be generating enough cash to pay the interest payment even without EfW delivered.

However, Coltrane are clearly looking to force a better deal for shareholders.

but... I didn't understand the rally yesterday as the deal looked terrible for shareholders to me. And now I don't understand the fall today. Unless of course it was just a load of speculative money yesterday from people who hadn't properly don't their research and now they are closing as things look messy with regards to a resolution.

From the RNS:
"Interserve expects to launch the finalised Deleveraging Plan in the next few weeks; the Deleveraging Plan will be subject to approval by Interserve's shareholders.

Whilst Interserve's objective remains to implement a fully consensual transaction, Interserve is also actively preparing alternative plans to ensure the proposed transaction can be implemented in the event that shareholder approval is not forthcoming."

Does anyone understand this better than me? My thought process is:
The Board represents the shareholders and works in their best interests. The Board has a set of rules to follow in the memorandum of incorporation or whatever it's called. This restricts the Board's cascaded powers in events such as share issue or dilution

So, I do not understand how the Board pursue an option to go ahead with the deleveraging transaction if shareholders don't agree. Surely this would be ultra vires and the directors would then become personally liable for the outcome? This would be true even if the shareholders voted for administration (however unlikely that would be, it the shareholders believed that was what was in their best interests?)

Thus, if the above follows it's no surprise Coltrane want to remove the Board. And rightly so if the Board are not going to represent the shareholders votes. Even if the Board believe the shareholders decision to be perverse.

I must have missed something... Any thoughts?