Sources close to the refinancing talks reject analyst claims that covenants will need retesting
Sources close to the refinancing talks between Barratt and its lenders have dismissed speculation that covenants will need to be retested because of accounting rules.
In a note this morning, Citi analyst Clyde Lewis said that tax repayments arising from previous land writedowns would not be added to companies' balance sheets unless companies can prove they will be used in the foreseeable future, a prospect that is unlikely given the recession.
As a result, companies would have lower overall asset values that could, in turn, trigger breaches of covenant.
Housebuilder Barratt's share price fell 12% to 70p as a result.
A source close to the talks between Barratt and its lenders said: ““The covenants for Barratt were heavily stress-tested and the banks remain highly confident that the company will continue to perform without any covenant revisiting.
“The banks were fully aware of the impact of land writedowns and the effect of deferred tax assets when the covenants were set. I am delighted the analyst community has caught up."
Barratt agreed new covenants on its £1.42bn debt pile last July.