Group led by Bank of America buys debt at a reduced price with the option of obtaining a sharehold in the firm
The syndicate of banks that bailed Jarvis out of financial ruin has sold up to £250m of the debt to a group led by the Bank of America.
Under the deal last Friday, lenders including Barclays and Royal Bank of Scotland transferred some of the Jarvis debt to the Bank of America at a reduced price, understood to be about 50-75p for every pound of original debt. This means the banks are in effect writing off some of the money they have lent to Jarvis.
However, for the original banks, it is at least a guarantee that they will receive some of the money invested in Jarvis. They are likely to have obtained a better price now for the debt than they would have a few months ago when Jarvis was in dire straits.
The Bank of America group has the option to swap the debt they have obtained for a shareholding in the business. Although the firm is by no means out of danger, it is in a more stable position now that it has been broken up and parts sold off.
It is thought that the Bank of America syndicate includes at least two other banks.
The sale of the debt is the latest in a string of complex financial transactions at Jarvis, which is now led by chief executive Alan Lovell. Two weeks ago, Jarvis secured a lifeline when it sold its £147m stake in London Underground consortium Tube Lines to Amey. It also agreed a £110m refinancing package for 14 PFI projects that are under construction.
After these deals went through, Jarvis’ original banks agreed to extend its debt facility until 27 March next year. Lovell was awarded a £450,000 bonus for concluding these transactions.
Despite the turnaround, Jarvis is a shadow of the company that had a £1bn market capitalisation two years ago. It never fully recovered from the damage to its reputation from the Potters Bar rail crash in May 2002, in which seven people died.
It is also still unclear how much the company owes in advisory fees. Some in the market believe it could be as much as £60m.
Jarvis has turned its attention to its rail renewal, road and plant hire businesses.