Barratt set to be rescued from property market woes

01 July 2008 / by Rachael Stiles
The struggling home builder Barratt Developments is now close to securing a rescue deal with lenders that will help it to ride out the current problems in the property market.

Like many other businesses involved in the property industry, Barratt has been hit hard by the crash in house sales and in some instances has had to abandon projects because they could not afford to finish them.

Falling house prices and soaring mortgage rates have brought instability to the housing market, as growing numbers of homeowners fall behind on home loan repayments, and first time buyers find that they have been pushed out of the market by the loss of the 100 per cent mortgage and high fees.

Subsequently, more and more people are opting to remain in rented accommodation instead of buying a home, or even selling up and moving into a rented home until the market stabilises.

The deal has been preliminarily approved by its banking syndicate which consists of HSBC, Royal Bank of Scotland, Barclays and Lloyds TSB.

Barratt currently has a debt of £1.7billion and has suffered a 95 per cent fall in its share price in little more than a year; the new deal will repay £600million short-term acquisition loan that it took out last year to fund its take over of rival Wilson Bowden and has been trying to refinance ever since, before the facility runs out.

The deal is being seen as a coup for the home builder because it has not had to ask its shareholders for a bail out, unlike its competitor Taylor Wimpey which has announced drastic writedowns and cut £660million off its valuation for UK, US and Spanish property.

The latter is currently in talks with major institutional shareholders about an emergency rights issue which is expected to raise about £550million.

Barratt has hired investment bank NM Rotherschild and restructuring team Deloitte to negotiate with its lenders.

A source close to Barratt said that barring any last minute hitch, the company will officially announce the deal at its trading update next week, the Telegraph reported today.

© Fair Investment Company Ltd