An announcement of a GBP 845m impairment provision and a larger-than-expected debt balance of GBP 695m sent Carillion’s stock over a cliff and its bonds from trading close to par to distressed levels. Carillion has been slow to follow its industry peers in moving away from public-private partnerships (PPPs) and has had trouble collecting on receivables in international markets such as the Middle East and Canada. In 2016, Carillion set strategic priorities to distance itself from riskier construction projects prone to cost overruns and receivable collection delays. In particular, Carillion is phasing out its PPPs and exiting difficult markets.

But it hasn’t been enough. The company has proposed to reduce its net debt position via cost-cutting efforts, disposal of assets such as the sale of Alawi, and three other disposals under way, as well as the completion of the 50% sale of its Oman business. They are also poised to negotiate for the recovery of significant outstanding receivables, though haven’t outlined a process for this. They also plan to improve their contract execution and be more selective for new contracts. Concerns remain as its 1H17 results and trading update scheduled for 29 September nears as there could be more impairment provisions announced. Net debt, leverage and receivables are all moving higher and free cash flow generation is moving lower.

An equity raise has been floated in the GBP 300m to GBP 500m range but that is on a GBP 200m market capitalization and becomes complicated given the lack of a significant or anchor shareholder. It also still remains the most shorted stock in the UK.

Though Carillion has not breached any covenants or defaulted on any of its debts, the market is keen to see which levers it will pull in order to pull itself out of a tricky situation. It’s creditors are split between bank lenders exposed to a revolving credit facility, private placement loans, and surety bonds, and the bondholders of its convertible debt. The debt is pari-passu but holdco and opco guarantees on various levels of the debt could change the subordination structure.

The company also has a GBP 112m Schuldschein facility.

Beyond an equity raise, the company has the option to equitise debt or look to amend the existing terms of its capital structure. Alternatively, it could look to a UK scheme of arrangement. Given its capital structure’s similarity to oil and gas company Premier Oil, Carillion could venture down a similar path for its UK scheme (should it enter into one). Premier Oil wrapped up its scheme this summer.

The webinar was led by Marion Halftermeyer, a restructuring reporter with Debtwire Europe and featured comments from Jou Yu, assistant editor at Debtwire Europe.

Senior analyst Bobby Kabli with Debtwire Europe provided listeners with an overview of the key metrics and concerns for evaluating the company.

Dawn Grocock, legal analyst with Debtwire Europe, explained the in-court restructuring options for Carillion should it ever pursue a UK scheme of arrangement, with particular note to the company’s Schuldschein facility.