Debt-laden Jarvis says £17 million loan vital

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EMBATTLED services and engineering group Jarvis has defended its request for a massive £17 million funding injection.

The debt-laden company said its bankers had agreed to loan the extra cash after it was forced to meet greater than anticipated working capital requirements.

It comes just two months after an extension of banking facilities to March 2006 rescued the business from the brink of collapse.

Jarvis described the latest funding as a vote of confidence in its future, although it still has to complete a balance sheet overhaul this summer.

The company - valued at 24 million on the stock market - is still an estimated 280m in debt and is looking at ways to reduce that figure. Jarvis has been in financial turmoil ever since the firm was implicated in the Potters Bar rail crash.

A debt-for-equity swap - a move that dilutes the value of existing shareholdings - is a "likely" option, the company added.

Jarvis did not disclose the reasons behind its need for the extra 17m of working capital, but the company said in December it would not need extra financing.

However, chief executive Alan Lovell said: "These agreements are positive steps which demonstrate the ongoing support of our lending group.

"We’ve got some working capital issues, the vast majority of which are purely timing.

"It effectively means there’s an increase of 2.5m to 3m in the debt burden until we complete the restructuring targeted for three or four months time."

In a statement, the company added: "This is part of a defined programme of working with the group’s lenders regarding a probable further short-term working capital requirement, and to achieve the board’s previously stated objective of restructuring its funding and capital base.

"The lenders have been supportive of this process. The restructuring is likely to include a debt-to-equity conversion."

As part of a strategy devised by Mr Lovell, Jarvis has ditched accommodation services work to focus on UK rail renewal, roads and plant hire work. The new strategy was put in place after Jarvis released itself from 14 outstanding construction projects, including schools and hospitals, and completed the sale of its most valuable asset - its stake in the London Tube Lines consortium - for 146.8m.

The Potters Bar rail crash - on a section of track maintained by Jarvis - marked the start of its difficulties in May 2002 and was followed by a cash crisis as Jarvis over-stretched itself on a number of PFI contracts.