The government is holding talks with the construction and outsourcing firm Carillion, in a last-ditch attempt to stave off the collapse of a company responsible for crucial services in schools, hospitals and prisons.
With the accountancy firm EY lined up to manage an administration that could be triggered as soon as Monday, a rescue deal is expected to hinge on whether the government is willing to help prop up the company.
Carillion, which is based in Wolverhampton, in the Midlands, and employs 43,000 staff, said it was still hopeful it could map out a future, involving its bank lenders swapping chunks of its £900m debt for shares. That plan would probably wipe out all existing shareholders.
But the banks, headed by HSBC, Barclays and Santander, have yet to agree on a restructuring plan and are understood to be reluctant to pour in new funding unless Downing Street takes part in a bailout.
The Cabinet Office is coordinating discussions expected to involve representatives from Carillion, accountants EY and multiple government departments, several of which employ Carillion to provide vital services.
The company derives £1.7bn – about a third of its revenue – from public sector contracts and public private partnerships. These include providing school dinners, cleaning and catering at NHS hospitals, construction work on rail projects such as HS2 and maintaining 50,000 army base homes for the Ministry of Defence.
Carillion is understood to be keen for the government to provide guarantees on some of its public sector contracts to give lenders the confidence to keep backing the company.
Carillion’s share price plunged by a further 29% on Friday and it has now lost 94% of its value in a year, meaning a company once worth £2bn is now valued at £61m.
Its value is dwarfed by its £900m debt pile and its £580m pension deficit, the latter of which was the subject of discussions on Friday involving the Pensions Regulator and the Pension Protection Fund, the government’s lifeboat that ensures retirement payouts continue if a company goes bust.
EY has been lined up to manage an administration that could be triggered as soon as Monday if no rescue plan for Carillion can be agreed at discussions on Sunday. That would effectively put EY in charge of Carillion’s government contracts until buyers can be found for chunks of the company.
The government has said it has contingency plans to handle the contracts if Carillion goes under. The Cabinet Office declined to comment on the rescue talks.
The government has come in for criticism for continuing to award a string of major contracts to Carillion despite its repeated profit warnings. Here is a list of the deals.
10 July 2017 – first profit warning
Carillion downgrades its profit forecasts after taking an £845m hit on the value of contracts. Chief executive Richard Howson quits and its shares fall 39%.
17 July – contract award
The government awards £1.4bn of HS2 contracts to a joint venture including Carillion.
18 July – contract award
Ministry of Defence hands Carillion a £158m contract to manage services such as catering and accommodation at 233 military facilities.
29 September – second profit warning
Carillion issues a fresh profit warning after unveiling a half-year loss of £1.15bn, which it calls a “disappointing set of results”.
6 November – contract award
Network Rail awards Carillion £62m contract to electrify the London-to-Corby rail line.
17 November – third profit warning
Carillion says it is seeking an easing of the terms of its debts, after problems with key contracts forced it to downgrade profit forecasts again.
20 November – contract award
The government’s Education and Skills Funding Agency awards £12m in schools building contracts to Carillion, despite what the interim chief executive, Keith Cochrane, calls the group’s “current challenges”.