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BRITAIN’s biggest housebuilder will strike a compromise deal with banks this week to buy it breathing space to renegotiate its £1.9 billion debt mountain.

Bankers for Taylor Wimpey are expected to postpone a crucial covenant test on its loans to give the builder more time to restructure its finances.

The embattled company was due to breach an end-of-year covenant test on its loans following a savage downturn in the housing market.

It is expected that Taylor Wimpey will be forced to update the London Stock Exchange this week on the progress of the negotiations.

Article continues at Times online

Labels: credit crunch, Taylor Wimpey

Taylor Wimpey, the crisis-hit housebuilder, will issue a grim trading statement this week, revealing an alarming drop in sales at a time when it needs all the cash it can muster to survive.

The firm, struggling under the weight of a £2bn debt mountain, will say that increased incentives to persuade buyers to commit to one of its homes have significantly reduced margins at a time when sale volumes have plunged.

Sales and house prices have weakened further since the company, led by chief executive Peter Redfearn, last gave the City an update in August.

Taylor Wimpey was worth £4.3bn midway through last year but it is now valued at just £142m. The firm is willing to sell off large chunks of its land bank as it struggles to meet its onerous bank obligations.

Taylor Wimpey's statement comes as analysts at Panmure Gordon expect write-downs at the firm to total £1.2bn, with £690m already accounted for. The company is expected to say that it has failed to reach agreement on a refinancing with banks and bondholders, which are now involved in talks to ensure the firm keeps on trading. Lenders are considering basic terms for restructuring the company's finances that would give it breathing space to trade through the crisis until 2012.

Article continues at Guardian online

Labels: credit crunch, Housebuilders, Taylor Wimpey

Shares in housebuilders rose this morning ahead of the launch of a £1bn government plan to help homeowners. Gordon Brown is expected to unveil a package of measures today to revive the ailing housing market targeted at first-time buyers and vulnerable families.

Shares in Taylor Wimpey jumped 7.6%, up 4.25p at 60.25p in early trading. Barratt was up 5.5%, or 8.5p, at 164.5p while Persimmon climbed 3.9%, or 15p to 400.25p. Bovis Homes advanced 3.4%, or 15.5p, to 466.25p and Wolseley rose 7.5p to 468p, an increase of 1.6%, making it the second-biggest riser on the FTSE 100.

However, the FTSE 100 index was down 20.2 points at 5582.7 points, a fall of 0.36%. Energy groups and miners were among the big fallers. Shares in Tullow Oil fell 3.7%, or 29.5p, to 761.5p, the biggest faller on the FTSE 100, while Cairn Energy dropped 3.5%, or 97p, to £27.13.

Energy shares fell amid talk of profit-taking and as US crude dropped to $108.55 a barrel, its lowest level since mid-April, as worries receded over the impact of hurricane Gustav. "There's been a run up in the shares of late with strong earnings and now people are just cashing in," one trader told Reuters.

For more information visit Guardian Online

Labels: Barratt Developments, Bovis Homes, Gordon Brown, House market, Housebuilders, Persimmon, property development, property prices, property trends, Taylor Wimpey, uk housing, Wolseley

Crest Nicholson, the house-builder taken private last year by HBOS and Scottish tycoon Sir Tom Hunter, has conceded that it could breach its banking covenants if the housing market continues to deteriorate.

In Crest's first set of accounts since de-listing from the stock exchange, which it filed last week, the company warned that its financial structure was highly leveraged.

'Financial forecasts, which take account of current market conditions, do not show any breaches of financial covenants,' Crest said.

'However, if the 2008 housing market proves to be significantly weaker than we expect, there is a risk that financial covenants will be breached. Contingency plans are in place to mitigate this risk.'

Although there has been speculation about the group's financial health, it is the first time it has formally stated there is a chance this could happen. The accounts also show the house-builder made a pre-tax loss of £10.1m in the 12 months to 31 October 2007. 'Finance expenses', including interest on loans, totalled £72.5m over the period.

But trading had remained strong last year, the company stated. Underlying pre-tax profits were £102.8m, up from £100m in 2006, and total housing completions rose by 11 per cent to 2,225. The average sale price was just under £198,000, down fractionally from the average of £199,000 recorded in 2006.

Article continues at Guardian Property

Labels: Crest Nicholson, Housebuilders, Housing market, HSBOS, property development, Sir Tom Hunter, Taylor Wimpey, uk housing

Housebuilders ploughed on with their growth plans at the top of the market and now they're paying the price, finds Mark Leftly.

Once again, Tony Pidgley, the Barnardo's boy turned multimillionaire residential builder, is set to make a killing out of a property downturn. While his peers at Barratt and Taylor Wimpey were getting ready to announce mass redundancies and desperately trying to shore up their balance sheets in the worst housing crisis since the early 1990s, the 60-year-old chief executive of Berkeley announced two weeks ago that the company would spend £350m on cheap land.

Berkeley board members had noted a 25 per cent fall in land prices, so decided to go buying in a move that in effect calls the bottom of the market. Pidgley made the same call in 1991, making him something of a legend in the close-knit world of housebuilding. "By and large the reaction from our shareholders has been first class," says Mr Pidgley, with the biggest of smiles. "The vast majority of them trust the management."

Investors in housebuilding's "big three" – Taylor Wimpey, Barratt Developments and Persimmon – have been far less trusting: their share prices have all lost more than 80 per cent of their value in the past year.

For Mr Pidgley, the game is simple: a decade of uninterrupted growth should have meant that builders had enough cash stashed away for the fall that was bound to occur in such a cyclical industry.

"The City pushes for more and more – turnover growth, profit growth – and it rewards managers if they achieve that," sighs a source. "But the industry is not scaleable; housebuilding needs discipline."

Mark Clare and Peter Redfern, the chief executives of Barratt and Taylor Wimpey respectively, believed that the industry was scaleable – that it was ripe for consolidation. Last year Barratt bought rival Wilson Bowden for £2.2bn, while Taylor Woodrow and Wimpey merged, creating two FTSE 100 forces.

Former directors at Barratt were not convinced by the strategy; the company hadn't made a big acquisition in two decades. Last week their doubts only grew stronger as the company, burdened by £1.7bn of debt, announced 1,000 people would go from its 6,700-strong workforce.

Leslie Kent, a director and analyst at broker FinnCap, says Barratt's decision to buy Wilson Bowden at the top of the market has caused its current plight. "It paid 22 quid for every 11 quid of assets," he points out.

The falling values of those assets and the decline in house sales meant Barratt was in serious danger of breaching its banking covenants. However, a trading statement this week is expected to confirm that Mr Clare has managed to find £400m of fresh debt to help finance repayment of the Wilson Bowden acquisition. He should also announce that he has negotiated a relaxation of Barratt's covenants.

Taylor Wimpey's problems run even deeper. On Monday the board confirmed speculation it had changed the terms of its credit facility – on the condition it raised equity. By Wednesday this capital raising was in chaos when a trading statement reported that negotiations with investors had not led to "a satisfactory transaction". If the situation is not resolved, or house prices don't rise dramatically, Taylor Wimpey will next year find itself in breach of "one or more" of its banking covenants, the statement added.

"The Taylor Wimpey stuff is really scary," says a property banker who is also a veteran of the 1990s crash.

Mr Kent at FinnCap adds that Taylor Wimpey's woes have been exacerbated by the way in which the merger was completed. Under accounting rules, one party had to be viewed as the acquirer and Taylor Woodrow was accorded that honour, with the result that Wimpey's land bank was valued at 2007 prices. As this was the peak of the market, that value have since fallen heavily, hurting the balance sheet.

"Builders that haven't made big acquisitions will find their land revaluations will not be in the same order of magnitude," says Mr Kent, before hinting that this won't necessarily protect their share prices. "The stock market takes no prisoners; all housebuilders are tarred with the same brush."

Article continues at The Independent

Labels: Barratt Developments, Berkeley Group, FinnCap, House market, Housebuilders, property analysis, property prices, Taylor Wimpey, Taylor Woodrow, Tony Pigley, uk housing

There is now a very real chance that Taylor Wimpey, the UK's largest housebuilder by production, could become the first builder to fall victim to the credit crunch.

Created from a merger of Taylor Woodrow and Wimpey just a year ago, the company has stolen the dubious mantel of housebuilder most likely to collapse from Barratt Developments, after it revealed today that it had failed to secure between £400 million and £500 million of new funds from investors.

In theory, Taylor Wimpey has plenty of time to sort out its balance sheet, as it is not in danger of breaching covenants on its £1.7 billion debt until February. In the meantime, short-term cash flow is good and the company has taken tough measures to make sure it stays that way by closing a third of its offices and almost a fifth of its staff.

Full Story at Times Online

Labels: Barratt Developments, Housebuilders, property analysis, property development, Residential property, Taylor Wimpey

The stock market value of British housebuilders has plunged by £11.34 billion in just 12 months and is set to fall further after two investment banks warned today the housing market downturn will descend to levels last seen in the early 1990s.

Barratt Developments emerged as the sector's hardest hit company for the second day, after its share slumped by 26 per cent.

Barratt, which is now worth just £300 million but has debts of £1.7 billion after its acquistion of Wilson Bowden last year, is expected to seek emergency funding, possibly through a debt-for-equity swap.

Barratt is now worth less than a tenth of its peak stock market value.
Taylor Wimpey, the UK's third largest builder by volume and the result of the combination of Taylor Woodrow and George Wimpey, also plummeted by 20 per cent.

The losses compounded heavy share price falls yesterday, which wiped £400 million of the market value of the builders. Since last June, the housebuilding sector, then worth £15 billion, has seen its shares plunge by 76 per cent.

Shares in Persimmon, the last remaining housebuilder in the FTSE 100, were also down 9 per cent in early trading to 353p, their lowest point for five years. Persimmon faces ejection from the FTSE later today.

Berkeley Group shares also slid 9 per cent to 666p after Goldman Sachs reduced its recommendation on the UK housebuilder to "sell" from "neutral" and dramatically slashed its target price from 819.9p to 582.3p.

Analysts at Merrill Lynch said: "The early 1990s housing market has increasing relevance as a comparator."

They added: "There is growing evidence of consumers how behaving in a manner similar to that seen in the early 1990s, in that concerns over job security and falling house prices are leading to a reluctance to make a house purchase."

Merrill Lynch downgraded six housebuilders in the sector - cutting Barratt Developments, Bellway, Berkeley, Galliford Try and Redrow from "neutral" to "underperform", while Persimmon was moved to "neutral" from "buy", traders said.

There are fears that many housebuilders will be forced to make dramatic writedowns. In the early 1990s, housebuilders wrote down 30 per cent of their value - about £1.3 billion - and many of them needed more than one writedown before their net asset value stabilised.

The sector has been squeezed by banks tightening up on mortgage lending following the credit crunch, hitting the housing market. Many builders have put projects on hold, as willing buyers have dried up, and are laying off staff, while concerns are mounting in the City that many will have to ask shareholders for cash to strengthen their finances.

Housebuilders have also become a target for “short-sellers” who hope to profit from falling share prices. According toresearch from Data Explorers, which monitors short positions in the market, more than 23 per cent of Bovis shares are on loan with “short” investors, followed by 19 per cent for Persimmon and almost 18 per cent for Redrow.

Latest figures from the Royal Institution of Chartered Surveyors, out yesterday, said agents sold an average of just 17.4 properties each during the three months to the end of May, the lowest figure since it began collecting data in 1978.

Merrill Lynch has turned its focus on unemployment levels saying that they will be critical to determining consumer confidence and housing transaction levels, as was the case in the early 1990s recession. The broker suspects that rising unemployment will put additional pressure on housing transaction volumes.

It believes that there will be 10 per cent fewer house sales than last year and that prices will fall by 10 per cent.

"We believe we have gone beyond the tipping point and are now clearly seeing a UK housing market being squeezed on opposing fronts - by a lack both of willing lenders, as well as willing purchasers," the bank wrote.

It suggests that housebuilders are entering a prolonged period of underperformance, with a downturn likely to persist over the next three years.

"We are inclined to believe that if 1988-89 corresponds to 2007-08, than 1990-91 would correspond to 2009-10," Merrill Lynch said.

After the early 1990s recession, house prices did not start to recover until 1994.

Original Story from Times Business Online.

Labels: Barratt Developments, Berkeley Group, House market, Housebuilders, Merill Lynch, Persimmon, property development, RCIS, Redrow, Taylor Wimpey, uk housing, Wilson Bowden