Barratt will not breach banking covenants

The City has dismissed fears that Barratt is on the verge of breaching its banking covenants after its £2.1bn acquisition of Wilson Bowden last April.

Earlier this week the £3bn-turnover housebuilder denied speculation that it would have to cut back its land buying or carry out a rights issue to help pay the £800m it borrowed to fund the purchase.

Barratt has said its debt is £1.7bn but according to Rachel Waring, an analyst with Panmure Gordon, it has about £500m headroom before it exhausts its debt facility of £2.3bn.

Chris Millington, an analyst at Numis, said: “People are getting very nervous about the housing market at the moment and because Barratt has got the highest debt of any housebuilder, it is being picked on. It is still some way off breaching its banking covenants.”

Kevin Cammack at Kaupthing agreed. “Barratt and Taylor Wimpey are the most vulnerable to a breach of covenant, owing to their recent acquisitions but that doesn’t mean it’s going to happen,” he said. “The worst case scenario is that Barratt will refinance the debt or stop buying land for a short time.”

Because Barratt has the highest debt of any housebuilder, it is being picked on

Chris Millington, Numis

Investors agree, as after an initial fall, Barratt’s share price rallied to 415p on Tuesday – up 13p on a week earlier.

A Barratt spokesperson said: “We do not understand the stories, in the light of our recent trading update in which we made it clear we were operating well within our facilities. We also made it clear that we will still have spent £1.2bn on land in the current financial year.”

Some observers questioned the wisdom of Barratt’s acquisition of Wilson Bowden, which was bought before the market faltered at the back-end of last year.

Barratt’s market capitalisation is now £1.4bn, 30% less than the £2.1bn it paid for Wilson Bowden alone.