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New Year crunch for Taylor Wimpey

Taylor Wimpey is facing a New Year’s debt crunch, with creditors expected to call on the house builder to reveal its debt position.

Under the terms of the company’s debt, creditors can ask Taylor Wimpey for details of its existing debt from the start of its new financial year, 1 January.

Analysts believe that Taylor Wimpey will have breached its debt covenants, entitling creditors to demand immediate repayment.

The imminent meeting is the latest chapter in a miserable saga for house builders.

Earlier this month Taylor Wimpey dropped out of the FTSE 250 index. The company was in the FTSE 100 as recently as March.

Taylor Wimpey has debt of £1.9 billion with £1.1 billion owed to its banks, £380 million to its private placement holders and £443 million to bondholders.

Such high debt in a falling housing market means it needs to find permanent refinancing to survive.

Brokers at KBC Peel Hunt say if creditors call in their debts Taylor Wimpey will need to pay off £600 million off debt in six weeks, something that would ultimately force the company to go under.

Taylor Wimpey’s creditors may thus choose to waive their right to test the covenants in order to give the board more time to negotiate a refinancing deal with banks.

KBC Peel Hunt analyst Robin Hardy said: “The creditors will not want to give up their current position of power. Taylor Wimpey has in effect been run as if it were in administration for the past few months anyway, doing nothing other than paying down the debt.

“Should the creditors behave aggressively and call in their debt the board will surrender.

“The creditors will then have to queue up behind the likes of the pension fund. Taylor Wimpey is in effect too toxic to topple.”

Analysts believe that creditors may want to swap some of their debt for equity in Taylor Wimpey.

MF Global house building analyst Andrew Gardner said: “The only reasonable scenario I can see is a debt for equity swap.

“If the creditors seize control of the company it is difficult to see how they could extract value.

“The only way is to build houses but the best people to do that are the current operational management.”

Panmure Gordon analyst Rachel Waring said: “With a debt-for-equity swap, if Taylor Wimpey survives there would be an upside for the creditors. So it is all or nothing.

“If the group goes under it would be a hugely negative moment but at least it would draw a line under the entire house building sector and we could move on. If a new covenant was agreed, that would also allow things to move on.”

Taylor Wimpey declined to comment.