Jarvis sets deadline for rescue deal

RAIL and roads engineer Jarvis has put a deadline of the end of August to complete a £300m rescue debt-for-equity swap.

But the deeply-troubled contractor continued to pile on the bad news with yet another poor trading statement and the announcement that its auditors have quit.

Jarvis said today it has a 31 August deadline with its bankers at Deutsche Bank to pull off a major restructuring, in which institutions holding rights over Jarvis's escalating debt mountain will swap them for equity in a restructured company.

The swap will leave existing shareholders with only 4.75%, but if they do not give the green light to the scheme they face their shares being delisted, leaving them with nothing.

Long-suffering investors have already seen their holdings reduced to very little. At 8p today they are trading at less than 10% of their value 12 months ago and only 1.4% of their value compared with a 2002 high prior to the fatal Potters Bar derailment on track maintained by Jarvis.

Deutsche Bank has lent the company a further £31.4m to get it through the debt-for-equity swap, which is planned to be followed immediately by a £50m placing with the company's new shareholders made up mainly of US distressed-debt specialists.

If the restructuring is a success Deutsche could do very well. For supporting it, Deutsche will be issued with warrants at the restructuring strike price, convertible at any time in the next three years for up to 15% of Jarvis equity .

Jarvis's future is by no means rosy, however. In a trading statement today its said its core rail and road businesses had done worse over the winter months than in the first half of its financial year, which closed on 31 March.

It is also stuck with several Private Finance Initiative facilities management and construction jobs which remain loss-making, and from which it is trying to extricate itself.

The company, headed by former Tory transport minister and unsuccessful London mayoral candidate Steve Norris, said: 'The directors acknowledge that forecasting in the group's current position is inherently difficult, that financial headroom is minimal and so there is very limited margin to accommodate any adverse trading or other developments which might have an impact on the group.'

The company also admitted its auditors, Ernst & Young, have quit over a row about fees. According to Jarvis E&Y was refusing to budge on its fees, which last year increased by 76% to £3.7m. They are to be replaced by RSM Robson Rhodes.