Barratt moves to calm fears of debt crisis

BARRATT boss Mark Clare will this week attempt to reassure shareholders that he has put the brakes on its spiralling debt problems when he is expected to announced a £400m refinancing deal with lenders.

But analysts are already warning that it will not be enough to secure the housebuilder's future in the long-term. Fears are also growing that Persimmon, which the City had thought was in a better position, will be forced to declare large-scale redundancies.

Clare is expected to confirm that lenders, including the Royal Bank of Scotland and HSBC, have agreed to a deal that would allow it to delay until 2011 payment of two thirds of a £600m acquisition package it borrowed last year, without having to raise further equity.

The full sum, which was raised to finance the takeover of rival housebuilder Wilson Bowden, had been due for repayment before April 25 2009.

Clare is hoping the deal will avoid the firm having the same dire problems as Taylor Wimpey, which last week admitted it has so far failed to secure the £500m extra it needs to shore up its finances during the property slowdown.

But leading analysts were already cautioning shareholders this weekend that the £400m deal is only a drop in the ocean of the housebuilder's troubles. Alistair Stewart, of Dresdner Kleinwort, claims Barratt will have to raise at least £1bn if it is to see the credit crunch through.

Another leading analyst said: "It's still a smidgeon of their overall debt. The £400m is only the tip of the iceberg." Barratt last week announced it is cutting 1,000 jobs to cope with rapidly falling house sales.

Although Persimmon's debt position is understood to be better than its rivals, concerns are mounting this weekend that the markets could be in for a shock when it issues its trading update on Tuesday. Persimmon's management has been trying to reduce its debt burden since it bought Westbury for £643m in 2006, but City fears are that its problems are far from over.

"They might be the biggest relative disappointment in the week because everyone thinks they are impregnable," warned one leading analyst. "We can expect very disappointing trading, a disappointing outlook, large redundancies and land write-downs."

Keith Bowman, equity analyst at Hargreaves Lansdown stockbrokers, said: "The big question for investors and one which even management themselves may not yet be in a position to answer, is will it be sufficient?"

At its last trading statement in April, Persimmon, which was knocked out of the FTSE 100 earlier this year, announced a 24% reduction in sales.

Housebuilders' shares took a hammering on the stock markets last week. Taylor Wimpey stock lost nearly half of its value, closing at 31.75p, while Barratt ended 34% down at 42.45p. Scottish housebuilder Cala Homes also revealed it is to cut 30 jobs and cease work on all homes unless they have already been sold.

Analysts do not expect much improvement this week with Redrow also expected to make substantial writedowns on its land bank. Redrow had been due to update the markets last week, but chose to delay by a week.