Shareholders wiped out in Jarvis debt restructuring

Shareholders in Jarvis, the crisis-ridden UK contracting group, are to be virtually wiped out in a financial restructuring which will leave them with a stake of just 5 per cent.

Shareholders in Jarvis, the crisis-ridden UK contracting group, are to be virtually wiped out in a financial restructuring which will leave them with a stake of just 5 per cent.

Jarvis shares fell yesterday by more than a third on the news to 7p, valuing the business at £10m. Three years ago the company was worth more than £800m.

The restructuring will remove most of the company's £280m of borrowings. It will take the form of a debt-for-equity swap, giving its lenders control of 95 per cent of Jarvis, and a subsequent offer of new shares to raise £50m.

In advance of the restructuring, Jarvis said it had reached agreement in principle with Deutsche Bank for a further £31.4m in short-term facilities to tide the company over. Without the bail-out, Jarvis would have been insolvent in weeks.

Jarvis's fortunes have collapsed spectacularly in the past three years, its reputation and finances battered by a spate of rail accidents and heavy losses on contracts taken out through the Government's private finance initiative.

The company's shares staged a minor rally at the start of this year after hopes were raised that it had at last put its financial woes behind it. In January, Jarvis struck a deal to see it through until March next year after raising £147m from the sale of its one-third stake in Tube Lines, one of the consortia that has taken over London Underground, and capping its liabilities under outstanding PFI schools contracts.

But in March, the company's prospects took a fresh downwards lurch after it was forced to go back to its banks for another £17m in working capital. Then last month shares fell again after Jarvis disclosed it needed yet more finance to stave off collapse.

Jarvis said the precise form of the debt-for-equity swap was still being worked on and whilst the negotiations were at an advanced stage there was no certainty that final agreement could be reached.

The group's previous lenders, Barclays and Royal Bank of Scotland, have sold most of their debt in the secondary market to US-based vulture funds, including Canyon Capital and Strategic Value. The debt trades at about 50 per cent of face value. Jarvis under the new chief executive Alan Lovell consists of three main businesses - UK rail track renewal, UK road maintenance and plant hire.

Jarvis's descent began in May 2002, after a train derailment at Potters Bar caused by faulty points on a stretch of the line maintained by the company. In September the next year, it caused a derailment outside Kings Cross after a GNER express ran out of track after leaving the station following overnight engineering work by Jarvis. It handed back its rail maintenance contracts to Network Rail before the infrastructure operator could sack it. This robbed Jarvis of £200m in revenues.

Further damage was done on school PFI projects where Jarvis bid too low for the work and was unable subsequently to deliver them on time or at a profit. The January agreement capped its remaining PFI liabilities to £50m.