Half a pound of flesh

26 November 2008 By George Hay Follow @gfhay

The UK housebuilder is close to testing banking covenants. Normally a debtforequity swap would loom. But TW’s UK lenders will be loath to put shares on their books. And such a move might also annoy the banks new political masters. Equity sweeteners may square the circle.

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Lenders to Taylor Wimpey are currently locked in negotiations over whether to take equity stakes in the form of preference shares or warrants in the stricken housebuilder.

Substantial house price falls mean Taylor Wimpey will likely break its interest cover covenants, whereby the interest charge cannot exceed 3 times ebitda.

The issue is complicated by the fact that three groups of lenders arrange Taylor Wimpey's £1.9bn debtpile – UK banks including Lloyds TSB, RBS and Barclays hold £1.1bn, US private placement bondholders hold £380m; and Eurobond holders have £443m. Each group is negotiating separately with the company.

Taylor Wimpey shares are now trading 97% down on their value this time last year. However, speculation on November 26 that a full debtfor equity swap would be avoided pushed the shares to 5.8p, up 31%.

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