Housebuilders labouring under the strains of a collapse in house prices and a much tougher mortgage market are now having to face up to the prospect of renewing debt facilities, as some of them fight to avoid breaching covenants.
Taylor Wimpey looks set to lead the way with a deal that could see its creditors taking an equity stake in the company. This is something that the board has fought against, but alternative options are fast disappearing. Created through the merger of George Wimpey and Taylor Woodrow, the group has seen its equity value shrink to £46m or around 1 per cent of that at the time of the merger. And along the way it has accumulated £1.9bn of debt. With covenants likely to be breached, management has now arranged a waiver on impending covenant tests to allow a revised debt package to be thrashed out. In any final restructuring deal, creditor banks are expected to take a single-digit equity stake, while Taylor Wimpey will pay a higher penal rate of interest on its outstanding debt.
These terms seem particularly kind when compared with those imposed on Crest Nicholson by its lenders recently. Taken private in May 2007 and jointly owned by HBOS and West Coast Capital, Crest Nicholson was brought to its knees by debts of £1bn. To avoid a breach of covenants, the company arranged a moratorium on interest payments. But a lack of agreement between creditors has led to a new proposal that could see debt halve under a restructuring deal and leave creditors with around 90 per cent of the equity, with the remaining 10 per cent given to management.
