Banks agree to extension of debt facility to 2006 after Jarvis strikes deal with Amey, boosting shares 15%

Beleaguered contractor Jarvis may have turned a corner this week as it clinched the sale to Amey of its £147m stake in London Underground consortium Tube Lines.
Jarvis also said that it had agreed a £110m refinancing package for 14 PFI projects that are under construction.

The Tube Lines deal, signed off at 2am on Saturday, is the lifeline that Jarvis has needed to save it from financial ruin.

The sale prompted its UK lenders Royal Bank of Scotland and Barclays to agree to a debt facility extension until 27 March 2006.

Chief executive Alan Lovell, who was brought in four months ago to turn the company round, said: “The completion of these three interrelated transactions draws a line under Jarvis’ troubled financial history and enables us to focus on the future development of our core businesses of rail, road and plant hire.” He said Jarvis would leave the construction sector when its existing projects had been completed.

Work on several of the 14 unfinished projects stopped when Jarvis was unable to pay subcontractors. The refinancing means that the banks have stumped up more cash so that Jarvis can complete the projects.

These deals draw a line under Jarvis’ troubled history

Alan Lovell, Jarvis chief executive

Construction on five of the projects will be taken over by other contractors. Jarvis is thought to be in talks with Vinci on four of these, in Lancaster, Nottingham, Croydon in Surrey and Rhonda in South Wales.

Shares rose 15% to 32p on the back of the announcement.

The news is a step forward for Jarvis, which will make a substantial saving from the transfer of staff. However, it is not clear how much it will make from the sale of its facilities management arm, which is next on the disposal list.

Advisory fees are another unknown quantity. When Jarvis announced its interim results at the end of December it said that it had paid out £32m in legal and professional fees. That only accounts for the period up to 30 September. Some in the market say that the complicated and protracted negotiations since then could double the amount.

Jarvis’ three lifelines

  • Sale of its one-third stake in London Underground Tube Lines for £147m to Amey
  • Refinancing package worth £110m for its 14 PFI projects still under construction
  • Extension of debt facility from UK banks including the Royal Bank of Scotland, Barclays and NatWest, until 27 March 2006

Postscript

John Worthington, former managing director of the highways business at Jarvis, has joined the Wrekin Group as chief executive.