Waste management firm Shanks Group has today (September 30) announced that it has sold equity stakes in two of its long-term PFI contracts to investment firm John Laing Investments for a total of £25 million.
PFI is central to our UK strategy and we have a strong platform offering sustainable solutions to meet local authorities' needs
Tom Drury, chief executive, Shanks Group
The sale sees John Laing acquire all the subordinated debt and 80% of the equity in the Milton Keynes-based company's contracts with the East London Waste Authority (ELWA) and Dumfries & Galloway council. Shanks will retain the long-term operating contracts for both deals.
Subordinated debt is deemed as less secure because it is less of a priority when money is being paid back to project backers than the senior debt, which is often provided by banks.
A memorandum of understanding has also been signed with John Laing Investments, which will see the firm co-invest with Shanks to bid for future PFI contracts. Shanks said this move aligns with its overall aim of reducing its equity contribution to PFIs but maintaining the long term operating contracts.
The waste management company first unveiled plans to sell equity stakes in its PFI contracts in December 2009 in order to fund its longer term growth strategy (see letsrecycle.com story).
Commenting on the sale, Tom Drury, Shanks chief executive, said: “The sale of the PFI equity stakes and the ongoing relationship we will have with John Laing on future bids has significantly strengthened the Group's already solid position in one of our key strategic areas.
“PFI is central to our UK strategy and we have a strong platform offering sustainable solutions to meet local authorities' needs of diverting residual household waste from landfill.”
Performance
In addition to the announcement of the sale of the PFI equity stakes, Shanks also reported its trading performance to September 30 2010. The waste management firm stated that, despite difficult market conditions, its performance was as expected.
Shanks said that the difficult conditions along with a one off decline in Belgian landfill and adverse currency movements were offset by factors including: improved recyclate prices; new contract volumes; further cost saving initiatives; improvements in its PFI margins; early returns from its £100 million strategic investment programme; and, lower financing costs.
And, Shanks said that the UK arm of the company had seen “significant profit growth”, which it said was principally driven by improvement in PFI margins.
The announcement of its trading performance comes as the mainstream media suggested American investment firm Carlyle Group had renewed interest in purchasing Shanks, having ended talks about a possible takeover in March 2010 (see letsrecycle.com story).
And, it was reported last week (September 22) that a potential second approach by Carlyle had led to Shanks' share price rising by over 10 pence per share.
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