Persimmon has said lenders will take a supportive stance during refinancing talks next year despite the market downturn, writes Tom Bill.

The housebuilder has debt of £904m, which it plans to reduce by £200m by December using trading income and by scaling down its business.

The overall figure comprises £580m in largely US private debt holdings, a loan of £270m from a syndicate of 15 lenders, and other overdraft facilities of about £53m.

At its trading update this week, which it brought forward by three weeks to halt the recent slump in its share price (see graph), Mike Killoran, finance director, said banks understood the housebuilder was healthy because it could generate cash.

In reference to the private debt holders, he said: “We are keeping them up to speed with events. They have their own constraints but they have been with us for a number of years. We expect we can work together to put the business on a sound footing.”

But some analysts questioned whether an agreement was a foregone conclusion. One said the fact that Persimmon had brought forward refinancing talks from autumn 2009 to the first half of next year was a tacit admission that it was set to breach lending covenants.

He said: “Persimmon gives the impression that lenders will be keen to do business with it but in the syndicate that shares £270m of its debt there are some small financial institutions that may not have the appetite” (see box).

He added: “Among the private placement noteholders, there may be some for whom a breach will automatically trigger a call-in of the debt. The company’s got a great management team but it’s your debt that will screw you up in this market, not your operational skills.”

At its trading update, Persimmon announced a land writedown of £600m. Despite this, the company said trading for the full year would be in line with expectations and it would complete about 10,000 homes in 2008 compared with 15,905 last year.

Persimmon’s sliding share price
Persimmon’s sliding share price

Poor appetites?

Persimmon’s lenders include:

Fortis Bank Bailed out by Belgian government in September
Bank of Ireland Has a lot of debt elsewhere including Barratt and Redrow
Landesbank Baden-Wuerttemburg Sub-prime exposure
WestLB Sub-prime exposure
Commerzbank Recently took over Dresdner