Sources claim Barratt is safe from breaching covenants

Barratt is not in danger of breaching its recently negotiated banking covenants, according to sources close to the talks between the housebuilder and its banks.

The assertion follows claims by some in the City that falls in house prices would trigger a breach of cashflow covenants, which were agreed in July.

A senior source close to the process said: “The story is wide of the mark. Barratt negotiated a package that was subject to significant stress testing and one in which all parties remain very comfortable can accommodate current and future market trends.

“One could only wish the more sensationalist equity analysts could be similarly stress tested.”

Barratt’s cashflow covenants replaced interest cover covenants amid fears about the group’s profitability in the downturn.

Another source said: “They were made very, very wide.”

Following the company’s results last week, Alastair Stewart, an analyst at Dresdner Kleinwort, said: “Once again, Barratt's worst case isn’t worse enough. We see further writedowns and risk of breaching covenants.”

A Barratt spokesman added: “At our results eight days ago management made it clear that it was comfortable with the greater headroom which the successful renegotiation of our banking covenants has given the company.”