Taylor Wimpey may have to issue 8.5bn new shares

If private equity groups take ownership of Taylor Wimpey, they would need to issue another 8.5bn new shares - eight times the current number in circulation, according to one analyst.

This is assuming that any takeover deal was structured to avoid adding to Taylor Wimpey’s current debt burden of £1.9bn.

Issuing and selling a swath of new shares at 20p each would be palatable to the current lenders as they wouldn’t be affected by the move - but existing shareholders would be horrified as the dilution would make their shares close to worthless.

However, if private equity couldn’t stump up sufficient equity and, instead, put forward a mix of extra debt and some new equity, then a new worry would be placed over the heads of TW’s existing lenders, banks and bond-holders.

To counter that threat they would want their debt position to be senior to the new debt, said one analyst who follows the group.

“The reason why the subject of a private equity sale being a possibility shows that there are issues with the banks that have not yet surfaced,” he commented.

“They are saying that if you want to borrow from us any more you have to jump through this hoop and that hoop.

“The issue is not just the higher interest rate they are asking, there is something else.”

So what might that something else be?

The banks know that if they are canny, once the house builder is rescued and on a sound financial footing, then its shares could jump from 10p towards the figure of 270p, seen in the city as being reasonable asset-based figure for shares to trade at in the medium-term.

However, the reality might be a jump to little more than 100p with the rest of the rise coming later.

Even so, TW’s banks feel that if they offer the house builder a survival lifeline, they will want a share of the benefits that subsequently flow.

That in turn means a demand on TW’s management for new shares at the bargain-basement price of 10p-12p or at least the right to subscribe on any further shares issues at a lip-smackingly favourable figure.

“The banks must want a big slice of equity,” said the analyst.

The trouble with giving its lenders a 25% stake in TW’s equity is that they would thereafter be a negative influence on TW’s share price.

With the banks constantly waiting for a chance to sell, this could potentially hold down on the market price, with other shareholders being worried about being caught out when the banks did finally jump ship.