Housebuilder’s debt facility of £450m until 2011 will tie lending more closely to cash flow

Redrow has dismissed claims that the refinancing deal agreed with its banks this week will loosen its grip on the business.

On Tuesday, the housebuilder announced a new £450m debt facility that runs until 2011. This will tie lending covenants more closely to cash flow than profit as a precaution during the downturn.

Some City analysts have said a reliance on cash flow will lead to housebuilders aggressively discounting the price of their homes to ensure a flow of cash. Alastair Stewart at Dresdner Kleinwort said it may force homes to be sold at a loss.

David Arnold, Redrow’s finance director, played down claims that the banks were now in the driving seat. “At the end of the day, the industry survives on cash flow and what we need is a stable market. The banks have not got us by the short and curlies.”

As part of the deal, Redrow said 2.25 percentage points would be added to its annual interest charge, which would take the figure from £16.1m to £22.3m.

Turnover at the housebuilder in the 12 months to 30 June 2008 fell 22%, from £834.3m to £650.1m, and the group fell £194m into the red after land writedowns of £259.4m. Before this exceptional cost, pre-tax profit fell 46%, from £121.1m to £65.5m.

Sales fell 19%, from 4,823 to 3,925 units, and the company’s withdrawal from the land market saw the number of plots fall 19%, from 20,200 to 16,450.

Neil Fitzsimmons, chief executive, hinted that the group had been more aggressive in writing down land than its rivals. It has assessed the value of about two-thirds of its landbank against the open market value of the land and the rest according to the normal measure of the profitability of each site.

He declined to comment on the intentions of hedge fund Toscafund, which has a 29% stake in the company. “You’d better ask it what its plans are. Any talks we have are confidential.”

Rescue Blues

It’s good that the government sees the need to do something, but it won’t transform the market. They need to get liquidity into the mortgage system in order to do that

Neil Fitzsimmons on the housing market rescue package