Taylor Wimpey's banks delay covenant test date

Taylor Wimpey (TW) is expected to tell the market this week that its end-of-the-year covenant test has been delayed.

The Daily Telegraph today reported that while the house builder struggles with its £1.9bn of debt, despite having a market value of only £140m, it is expected to get a reprieve on a covenant test due to take place in the first week of the New Year.

The paper said that Taylor Wimpey looked likely to have failed the covenant test.

It added: “The company is still in the process of renegotiating its loan terms.

“Talks were originally due to complete before the end of the year but in October Taylor Wimpey said it was widening the pool of debt-holders it was in talks with, and extending the deadline to early 2009.”

Chris Millington, analyst with Numis Securities, said: “If true, and if the renegotiations go through, it would show, in a wider sense, that banks are not going to be too militant towards financially stretched house building companies.

“However the position is very binary and anyone buying in to Taylor Wimpey right now is a brave man.”

How worrisome is the present situation for employees still working for the house builder?

The answer is that they can feel safer than TW’s shareholders in so far as while there may still be the need for a further trimming of numbers, the company will still need to be managed as a house builder no matter what happens next.

Should everything collapse, there would be no point in simply shutting up shop and trying to sell off plots of potential building land.

Rather, to keep the cash flowing, the sites would need to be built out at as good a price as possible which means there would still need to be a core number of staff on board.