Persimmon attempting to refinance £900m debt, Bovis Homes does the same

Persimmon is reported to be involved in premature moves to refinance its debt mountain – which stands at £900m – ahead of breaches to its banking covenants.

Bovis Homes, with a £93m debt pile, is also jumping through a similar hoop.

With lenders now holding the whip hand, Persimmon is likely to find itself forced into paying more than 10% interest given that other house builders who have already made similar moves, notably Barratt and Taylor Wimpey, have ended up paying 2% extra interest on top of their current deal’s figure… not to mention the need for a sweetener in the form of an arrangement fee running to 1% of the sum involved.

The Financial Times today says that Persimmon has appointed NM Rothschild, the investment bank, to act in the renegotiation of its £900m debt.

The FT says: “Analysts widely expect Persimmon to breach at least one of its banking covenants, relating to profitability, in 2009 as the developer faces lower margins and volumes.

“Some analysts questioned whether such a deal would be available for Persimmon following a deterioration in housing and financial markets since rivals Barratt Developments and Redrow agreed terms.

“It’s still a risky profile so a double-digit interest wouldn’t surprise anyone.”

Persimmon’s attempt to sort out its medium-term future is rather complex because its debt has been placed with a bumper-sized number of lenders.

Whatever appetite the banks have for further lending, it looks as if those who bit the bullet first will have secured the best terms.

Of those still attempting to secure fresh financing deals needed to stay afloat, Taylor Wimpey is having the roughest ride. It is being forced to bow to demanding terms imposed by its phalanx of lenders, including a grab for a chunky share in its equity.

David Ritchie, chief executive of Bovis Homes, told the FT: “These processes take longer now than they did in previous year.”

He said his aim was to have a deal agreed by next March.

Bellway and Berkeley are the only two major players who have not had to renegotiate the terms of their debts.