Given the construction related uncertainties, neither Serco Group plc nor the Lenders were prepared to extend their commitments in support of Laser

1.25  In April 2003, John Laing plc sold its interest in Laser to Serco Group plc for £800,000. From this moment, Laser became a wholly owned subsidiary of Serco Group plc. While Serco Group plc did not expect a return on this investment, it considered that the leadership of Laser had to change in order for the project to stand the best chance of success. However, Serco Group plc was not prepared to shoulder responsibility for construction activities and, while it was prepared to forgo a return on its investment in Laser, it was not prepared to increase its investment or guarantee completion of construction work.

1.26  The over-riding concern for the Lenders was recovery of their loans. At the time of the 2001 deal, they re-modelled the project and concluded that Laser's forecast cash flows would still cover repayment of the projected debt. The Lenders were, therefore, prepared to keep Laser's debt facilities open.

1.27  When Laser encountered construction related difficulties in 2003 and 2004, the Lenders continued to support the company. They agreed that Laser could defer repayments of principal, but they refused to increase the debt in the project. The Lenders told us that they carefully considered the option of stepping-in to replace Laser. They decided that the commercial risk of taking on Laser's obligations, particularly given the uncertain cost of correcting the deficient design, was too large. They also considered that replacing Laser would not be cost effective because another contractor would not possess any knowledge of the problems and complexities associated with the project.