Taylor Wimpey equity offer to lenders
11:22 26 Nov 2008
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Taylor Wimpey to offer equity to lenders – so runs a newspaper headline this morning after the house builder’s shares slide by 37% yesterday to touch a new low of little more than 4p.
The Financial Times reports this morning: “The ailing developer has caved in to its banks’ demands to own part of the company in spite of its management publicly opposing such a move a fortnight ago.”
Handing out new equity is said to have enabled TW to get round the neigh-on-impossible task of sorting out its £1.9bn debt pile ahead of the first of the test dates for its financial covenants – 1 January.
The deal will see banks and other lenders own “a single-digit stake in the business” according to the FT.
They will also “charge much higher interest rates in exchange for waiving current conditions surrounding the debt”.
With shares now trading at next to nothing, the value of the house building group stands at a miserable £46m which is around 1% of its valuation on the glorious day back in mid-2007 when Taylor Woodrow and George Wimpey announced that they were to merge.
Rather than take a larger slice of equity in TW, it looks as if the banks have given top priority to extracting an immediate cash flow bonus in the form of bumper future interest rates.
TW is currently paying 0.5% over the inter-bank lending rate but under the new deal that will rocket by a further 4.5% to leave TW paying 5% over inter-bank lending rate.
John Messenger, analyst in the stockbroking arm of Royal Bank of