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Date: Friday 03 Oct 2008

LONDON (ShareCast) - Taylor Wimpey's discussion with its banks and debt holders to redraw its banking covenants will not be concluded before next year, sparking new fears over the house builder's financial health.

The group had been expected to conclude a revised structure before the New Year but it said the extension of the current discussion to include applicable Eurobond holders will prolong the negotiation process

"Discussions are continuing on a constructive basis and the coordinating banks have indicated that it is their intention to agree to replace the current covenants with a revised set of covenants which are more appropriate to the current market environment," Taylor said.

Taylor Wimpey has previously indicated it would breach its interest cover covenant by February unless it agrees a new financing package, though it says it remains in compliance with its existing covenant package and has adequate facilities available.

Broker KBC Peel Hunt reiterated its recommendation to sell Taylor Wimpey on this morning's news

The broadening of the talks to Eurobond holders suggests that either the loan to value (LTV) covenants will be breached, or “perhaps the negotiations with the US Private Placement debt holders are, as we had always expected, going badly and that the cross-default is now likely,” KBC said.

KBC has previously suggested that the banks would have a better chance of recovering their money if the company went to the wall, rather than continuing to prop it up.

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