Carillion's lenders are preparing for potentially painful restructuring talks if the British construction company is unable to stabilise its business and plunging share price, sources familiar with the company and its investors said. Carillion, which has worked on projects ranging from London's Tate Modern gallery to the Twickenham Rugby stadium, announced huge provisions on problem contacts on Monday, leading its chief executive to step down and its shares to plummet by more than two thirds in three days.
The stock hit a new low of 57.25 pence on Wednesday on speculation the company, which employs around 48,500 people, may seek to raise money via a big share sale. If that proves too difficult, or insufficient, Carillion might have to consider a debt restructuring, bankers and analysts said.
The company, which was demerged from the Tarmac group in 1999 and went on to buy construction firm Alfred McAlpine, has said it is considering all options to cut debt. Owners of Carillion's convertible bonds - debt instruments that can be swapped into shares under certain conditions - could demand a cash payment in exchange for forgiving some of the company's debt, said a banker who was among the arrangers of the original bond sale.
"Investors are more shocked at the moment than anything. Eventually if the situation doesn't stabilise, they will look to sell, but who will buy it?" said the banker. "In the end, a write off of the debt in exchange for getting part of the nominal value in cash is the most likely outcome, assuming the situation with the company does not stabilise."
In an extreme case, they may even push to convert the bonds into shares in order to recoup at least some of their investment, he added. "They will have losses, but at least they can monetise shares, whereas the convertible bonds will be very difficult to get rid of," he said. Carillion's average net borrowing in the first of the year was 695 million pounds ($896 million), substantially higher than its current market value.
The company sold 170 million pounds of five-year convertible bonds in December 2014, paying out a coupon of 2.50 percent and making up more than half of its outstanding bonds, according to Reuters data. If converted, the bonds would represent about 11 percent of the company's outstanding shares.
Sources close to the situation pointed to French oil services firm CGG as a recent example of a debt restructuring involving convertible bonds. In March, CGG started talks with the bondholders to try and agree a proposal that involves conversion of bonds into shares and a rights issue thereafter.
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