No easy way out for Barratt

Barratt has three choices. The first is a rights issue in order to take some of its £1.7bn debt out of the equation and protect the equity base. The second is to negotiate with the banks to refinance the debt, with the aim of buying it time. The third is to hope that trading improves.

The latter doesn’t look likely and the option of a conventional rights issue looks equally doubtful because the share price has fallen so far that it would be too dilutive. The problem with the second option is that banks are trying to reduce their exposure to these markets too and, of course, they themselves have had to refinance.

If Barratt has to write down land, it will be at risk of breaching its asset cover covenants. It may get to a market cap of £200m with debt of £1.7bn, which would horrify the banks. As profits fall it will be at risk of breaching its interest covenant, so the bad news is coming from all sides.

The frightening thing is that because the problem has come about so incredibly quickly, housebuilders are struggling to keep up with events and plot their next move.

Will any sovereign funds come to the rescue? I doubt it. Basically Barratt is too small; they’d rather put their money into the financial sector. Investors are more likely to come from vulture or private equity funds.