Sources say plans to save housebuilder will continue despite financial problems among its lenders
Taylor Wimpey’s rescue deal is on track despite the turmoil in the financial markets, sources close to the talks between the housebuilder and its banks have confirmed.
The company is carrying out due diligence on a deal that would see its lenders relax banking covenants that are likely to be breached in January 2009.
A deal is needed because of the housebuilder’s plunging profits and high debt (see box). A source said the wider economic unrest had slowed the process but should not affect the outcome.
He said: “The situation in the credit markets may delay things, but a solution will be ground out. Taylor Wimpey knows it will muddle through; it’s just waiting for the market to improve.”
Furthermore, it is understood that there is a reluctance among the banks to let Taylor Wimpey go under. The source said: “The company’s high debt means banks are already heavily involved and can’t pull back credit lines. If the company went under it would leave the banks with a load of assets they would have to dispose of. Hence, they have to support the company.”
The latest news to affect the talks, which are being led by HSBC and Royal Bank of Scotland, was the bail-out of Belgian bank Fortis, which is another of Taylor Wimpey’s backers. It follows the £1.3bn takeover of Alliance & Leicester, also a lender, by Spanish group Santander in July.
The source said: “It’s ironic that Taylor Wimpey will survive but their bankers need rescue packages.”
There is mixed opinion in the City about the likelihood of a deal given the fragility in the banking sector after the bail-out of several high-profile lenders. One analyst doubted it would fail, saying: “The banks will certainly get their pound of flesh for agreeing a deal but it’s another thing to let a big housebuilder go under.”
Another warned: “Lenders may decide that calling in the administrators is the quickest way of getting their cash back, given the already fragile state of global credit markets.
How much trouble is it in?
Debt £1.7bn First-half losses £1.5bn
Gearing (debt divided by equity) 77% (2007: 34%)
Land writedowns in first half of 2008 £690m
Market cap £410m (October 2007: £3.2bn)