Taylor Wimpey cash shortage threatens lifeline deal with banks

Taylor Wimpey is unlikely to strike a deal with its lenders to waive banking covenants without raising new cash first, according to sources close to the talks.

This week the housebuilder appointed NM Rothschild to persuade banks and bondholders to waive covenants that are likely to be triggered when it reaches its financial year end on 31 December.

The aim is to secure a similar deal to Barratt's. Earlier this month its banks agreed to relax lending arrangements without requiring the housebuilder to raise fresh funds from either current investors or private equity funds.

Both options would dilute the share price and the private equity route would mean surrendering up to 30% of the business to an outsider.

The source close to the talks between Taylor Wimpey and its banks said: “The banks will wait to see Rothschild's offer but it will have to be remarkable because there is a big hole to plug. All of the banks' approval for covenant relaxation was contingent on fresh equity so it will be very tough to square that circle. The easiest answer for the company is to raise fresh cash.”

Taylor Wimpey's £216m pension fund deficit is believed to be one of the stumbling blocks, which compares to a figure of £65m at Barratt. The complicated structure of its debt and the fact it is second in line behind its rival in trying to win such a concession from the banks will also make any deal harder to secure, according to analysts.

Taylor Wimpey has £1.7bn of debt, £825m of which is held by 12 bondholders. The rest is held by Lloyds, Barclays, HSBC and Royal Bank of Scotland.

It is understood no deal is due to be announced before Taylor Wimpey's trading update on 27 August because of the complicated nature of the discussions with bondholders.

One analyst said: “It's not like going to 12 people. It's like going to 12 groups of people who all have disparate interests. The discussions will be complex, to say the least. That's why they have had to get in Rothschild.”

Meanwhile, Taylor Wimpey is considering resuscitating the £500m share placement to investors that failed earlier this month, according to sources close to the company. It is also understood to be in parallel talks with four private equity groups about taking a 30% stake in the company.