Company鈥檚 lenders grant housebuilder reprieve as other refinancing options are ruled out

Barratt has struck a deal with its banks to buy embattled chief executive Mark Clare more time to turn its fortunes around.

The housebuilder is in talks with the Royal Bank of Scotland, UBS, HSBC and Lloyds. Sources close to the talks said an agreement had been reached to waive a clause that could have put Barratt in breach of its lending covenants after it writes down the value of its landbank in July. These 鈥渁sset cover covenants鈥� govern the ratio of debt to assets, and breaches were thought likely, given the falling land market and Barratt鈥檚 debt of 拢1.8bn.

A source close to the talks says all Barratt鈥檚 other refinancing options have been ruled out. It is understood the waiver will remain until it has repaid the remaining 拢400m it borrowed to fund the 拢2.2bn acquisition of Wilson Bowden in February 2007. It has until the middle of 2011 to do this.

The source said: 鈥淭he picture has become a lot clearer in the past few days. Despite rumours about Barratt鈥檚 future, the banks are very understanding of its position.鈥� An announcement is expected from Barratt at its next trading update on 10 July; it declined to comment this week. 

Despite the rumours about Barratt鈥檚 future, the banks are very understanding

Source close to Barratt

The source added that Barratt had fended off 鈥渘umerous approaches鈥� from vulture funds over the past 10 days. Investors understood to have contacted the 拢3bn-turnover housebuilder last week include US-based Polaris Capital Management.

Calls have grown for Clare to leave the company since Barratt鈥檚 share price halved to 60p over three days last week. Clare said no discussions have taken place about his exit.

Barratt鈥檚 move comes as the outlook for housebuilders continues to worsen. The Construction Products Association predicts that housing starts will fall to their lowest level since 1945 and construction output will drop 1.3% this year.

Companies are continuing to try to address the market problems. Subcontractors this week accused Taylor Wimpey, whose credit was downgraded by ratings agency Fitch to 鈥渏unk status鈥�, of holding off payments until the end of its half year in June to strengthen its balance sheet. The company has denied it has such a policy.