Taylor Wimpey seeks mystery traders of £450m Eurobonds

The individuals trading in Taylor Wimpey’s Eurobonds - with a face value of £450m - may be hampering the house builder’s effort to open up a dialogue with them.

There is an urgency to this quest as TW’s financial clock is ticking down: the group needs to complete discussions with all its debt providers before 7 February 2009 otherwise there is the risk that bondholders could ask for £450m back in full.

That would provide a massive instant gain as the bonds are currently trading at 47% of their face value.

There were two issues of TW’s Eurobonds: an initial £200m-worth followed by a second tranche that made £250m when first sold.

The view is that some are still held by their original buyers, by individuals who are genuine long-term supporters of the company and who would be prepared to see it through its current difficulties.

At the other end of the scale, however, are others, particularly those who have been buying recently at half price, who could be hoping to see the value rise upwards as quickly as possible and one way to achieve that would be to push the group into administration.

“It could be that Taylor Wimpey has failed to find a number of these Eurobond holders because they don’t want to be found,” said one analyst. “There can be six or seven layers of complex cross-ownership leading to some impenetrable entity such as Tea Cup Nominees based out in the Bahamas.

“It ought to be a matter of public record who owns such bonds. Transactions should be there for public scrutiny.”

Taylor Wimpey sits on £1.7bn of net debt.

That sum divides between:

• £870m of bank debt.
• £450m of traded Eurobonds.
• £380m of private placements – another form of lending but one which is not publicly tradable.

If TW remains solvent the first tranche of Eurobonds (£200m) becomes payable in February 2013 while the second tranche (£250m) runs through to 2019.

TW’s covenant renegotiations with its other lenders must be completed within the next four months as the next test date is February 9 2009.

“February next year is the killer date,” said the analyst.

The problem for TW is that the Eurobonds, also referred to as bearer bonds, have no traceability. The group has told the world that it wants to get into discussions but finds itself having to wait for those holders who want to be identified to come forward – what TW urgently need is a corporate equivalent to the Missing Persons’ Bureau.

Should TW’s Eurobond untraceables have sufficient malevolence to push towards the edge as hard as possible, they would have to tread very carefully between administration and receivership because of the different priority given to the pension scheme and its huge deficit.

“It would be a tight-rope for them,” said the analyst.

In administration but still operating as a going concern, there would be no serious change to the valuation or priority given to the pension scheme which currently has a deficit valued at £377m.

However should TW end up in receivership, the issue of the pension fund would change. It would become the top priority, taking seniority over both bank debt and loan holders.

Also, should such a scenario unfurl, the deficit would be re-valued to a figure of £1.2bn, this being the top-up sum that would be required in the situation of the pension fund being passed across to an insurance provider.