Taylor Wimpey Share Discussion Threads

[slytherin] 26/11/2010 12:24

Talk back in January was of a £600m flotation of the US business, but I suspect £300m-£350m is the best realisation that could be hoped for in the short term. Worth avoiding for 18 months to 2 years if it all possible.

[hiq] 26/11/2010 12:07

So maybe not £40m saving on interest after all

[smurfy2001] 26/11/2010 12:06

Latest update


The pricing of the new bond at 10.375% shows the market is
cautious on TW. The new debt package is a step forwards,
but we do see issues on borrowing capacity and covenants
that are still restrictive. Debt is cheaper, but there is more of
it, so fair value by synthetic NAV is unchanged at 21p.

New bond priced at 10.375% - We understand that the board had hoped to pay
7-7.5% for the new £250 five-year bond issue, but it become clear through the
rejection of the redemption package and chatter in the bond market that the cost
of this issue was going to be high. This price makes the coupon on the £100m
fund facility (500bps over LIBOR) and the bank debt (225 to 375bps over) look
underpriced. Will these other lenders be disaffected?

Maturity has not extended that much – We estimate that the average maturity
of the new debt package is only nine months later than the old. This is due to the
long date on the 2019 bond being lost and because £350m of the bank debt is
on the same terms as the previous maturity, ie July 2012.

Debt cost is down, but the quantum of debt is up – Now we have the last of
the pricing data, we calculate that the blended rate of interest on the debt is
6.6% vs 10.8% on the way the group calculates the figure. On the drawn debt,
however, the reduction is 5.4% down from 6.9%, good but less dramatic.
However, the quantum of the debt has stepped up a lot. At the half year debt
was £633m, but pro-forma for the year-end is likely to be nearer £885m. Overall,
the hard servicing cost of the debt will drop only around 10-12% and the P&L
charge will drop by only 7-8%, not the halving some observers had hoped for.

Headroom appears limited – Total borrowing capacity is £1,300m and, with
peak debt likely to be around £1,075m, there is not a huge amount of headroom.
Given that the borrowing capacity drops to £950m in just 20 months' time, there
is even less room. On covenants, the main restrictions on investment have been
removed, but there does appear to be limited headroom in the gearing
covenants. Gearing is to be measured as borrowing plus land creditors, the latter
adding more than £300m. Gearing at the end of 2011 may be only b 90% but
even on current debt and creditors, gearing then could be 80-85% and the group
is looking to increase investment. Interest cover is also potentially restrictive with
cover of 3x required; it is below that level today. There is always the option to
sell North America, but we have always had concerns about this. However, in
order to keep within covenant limits, the sale is beginning to look like a necessity
not the luxury the board might have hoped.

[smurfy2001] 26/11/2010 12:05

Is that how they really work? %3.5 per assum on a junk bond seems low to me??



Slytherin - 26 Nov'10 - 09:19 - 5384 of 5390


The 10.375% discount is the difference between the purchase price and the redemption price - assuming these bonds have a maturity of more than one year, then it is not 10.375% pa, rather 10.375% total interest over the term of the instrument. Could be wrong in this case, haven't read in great detail, but that's how it normally works. So if it has a 3-year maturity, the rate is around 3.5% pa.

[hiq] 26/11/2010 11:55

The way they quickly offered existing bondholders more seems to imply they were pretty keen to get that refinancing package finalised, even if it meant overpaying the bondholders a couple of mill...


...which means that the £40m pa saving on interest rings true

[imastu pidgitaswell] 26/11/2010 11:23

Doesn't surprise me - it's the uncertainty that paralyses a market. Once there is clarity and people can know their own situation (the vast majority of public sector workers will be completely unaffected by the CSR), they can take big decisions, be it house/car/holidays etc.

And with the TW-specific financing issues now sorted, there is genuine scope for optimism.

[lyntwyn] 26/11/2010 10:31

In the four weeks post the UK government spending review, many housebuilders have reported a pick-up in trading, says Deutsche Bank. Says the question now is on sustainability. Thinks there is upside potential for order books carried into '11. Despite the bounce in the Taylor Wimpey (TW.LN) share price over the past week, says the housebuilder sector as a whole continues to touch 12-month lows and remains cheap, trading at x0.44 '11 tangible NAV. Recommends building positions in its favored stocks. Favors companies with strong leverage to the contribution of new land and margin recovery. Top picks are Barratt (BDEV.LN), Bovis (BVS.LN) and Taylor Wimpey, all rated buy.

[hiq] 26/11/2010 10:04

Just look at the context

[imastu pidgitaswell] 26/11/2010 09:55

Good of you to put the bit in about not copying and pasting - and then doing just that!

:-)


Share price doing its usual...

[hiq] 26/11/2010 09:52

Taylor Wimpey improves bond terms
By Ed Hammond and Anousha Sakoui

Published: November 24 2010 22:43 | Last updated: November 24 2010 22:43

Taylor Wimpey has completed a U-turn on its refinancing plans after the housebuilder's bondholders objected to the terms of its original proposal to repay £450m of debt.

The housebuilder had proposed a buy-back price on its bonds maturing in 2012 and 2019 that would have seen holders recoup their original loans plus 5 per cent and 15 per cent respectively.

However, some of Taylor Wimpey's bondholders told the company that the indicated price for the proposed offer was too low. The company reacted swiftly and on Wednesday improved the price at which it would buy back the bonds.

Under the terms of the new proposal, holders of the £250m tranche of bonds maturing in 2012 would receive 107 per cent of their original loan, while holders of the £200m tranche of bonds maturing in 2019 would receive 121 per cent.

The 2019 bonds had been quoted at between 112.5 per cent to 114.5 per cent on Wednesday, according to CapitalStructure, the debt information provider.

According to people familiar with Taylor Wimpey's thinking, the speed of the move to pacify bondholders, rather than, as was expected, engaging in negotiations, is indicative of the company's desire to push ahead with the refinancing.

"The last thing [Taylor Wimpey] wants right now is a distraction to this process or anything that might risk knocking the momentum of the refinancing," said one person close to the talks.

"The easiest thing to do was simply to get rid of the irritation to the process and keep the momentum going," the person added.

However, some of the company's bondholders said they felt the new offer, which will cost Taylor Wimpey an extra £13m, was more than was necessary.

One bondholder said that the company was told it needed to change the terms to successfully refinance the bonds, but that they were "pleasantly surprised" that it had offered as much as it did. A banking source added that the offer to bondholders had been a "try on".

"A company that hadn't put a foot wrong financially might just have got away with it, but a couple of years ago things looked grim for these bondholders and they are unlikely to be feeling particularly generous," the person said.

In a refinancing package announced last week, Taylor Wimpey said that it would be launching a £250m five-year high yield bond, which is expected to price in the next two weeks, and £100m of private placement notes as part of a deal to secure a new £950m bank facility.

As well as lifting some of its spending constraints, the new financing package will allow Taylor Wimpey to sell its North American businesses without seeking approval from the lenders or its various holders of bonds and private placement notes.

Shares in Taylor Wimpey, which have fallen 27 per cent during the past six months, rose 0.18p to 24.43p on Wednesday
.

[slytherin] 26/11/2010 09:19

The 10.375% discount is the difference between the purchase price and the redemption price - assuming these bonds have a maturity of more than one year, then it is not 10.375% pa, rather 10.375% total interest over the term of the instrument. Could be wrong in this case, haven't read in great detail, but that's how it normally works. So if it has a 3-year maturity, the rate is around 3.5% pa.

[kosyboy] 26/11/2010 08:52

Good start, lets hope it keep's going up

[barf2] 26/11/2010 08:50

Cheers Ima

[imastu pidgitaswell] 26/11/2010 08:45

The simple version of the average debt interest rate is:

The rate on the facility is between 2.25-3.75% above base rates (currently 0.5%). Hence the mix of 10.375% on the first £250m, plus the rate applicable to the £100m Prudential/M&G Fund Facility (quoted at base rate plus 5%, hence 5.5%, but will be 5.0% if the US business is sold), plus the (approximate) 2.75%-4.25% (say 3.5%) on the facility up to the actual debt level (£650-£700m, say £700m) above the first £350m, gives:

£250m at 10.375% - due 2015
£100m at 5.5% - due 2015
£350m at 3.5% - a 5 year facility (but with the first part due for review in 2012).

Which (per Deutsch Bank) gives an average of around 8% - although I make it a fair bit lower. Presumably DB are including the writing down over the period of the facility the ludicrous levels of fees involved?

Anyway, upshot, as others have stated, is that it's about a £40m interest saving per year, plus certainty. Surely it must go up...

[hiq] 26/11/2010 08:45

TW. has seen the bottom

[barf2] 26/11/2010 08:18

I was just thinking the opposite.SP holding up firm with the ftse down 40 points and a few chunky[by comparison]sells.

I'll call 25.6p close ;-)

[scars] 26/11/2010 08:14

Big sells gooing through on the low end, expecting a friday pull back.

[hiq] 26/11/2010 07:20

We know the average interest rate is around 8%

[barf2] 26/11/2010 06:41

Spenny
You have got it about right.By raising the notes they are moving the debt from a bank loan to a loan spread across various bond funds etc.

Net position doesn't differ much.

10.375%sounds very high but perhaps that is what they've got to pay to get the required take up.I wonder how that 10.375% compares to the bank rate on the remainder of the debt.

[spennysimmo] 25/11/2010 22:44

So that the can have a revolving £950m revolving facility that will surely have restrictive covenants?

£950m revolving facility is a fancy way of saying it is a £950m credit card.

[hiq] 25/11/2010 22:21

It's pretty simple so I'm sure you will get it.

Read the FT stuff I posted here plus the other helpful stuff

[offler] 25/11/2010 22:03

They are paying of debt that had many restrictive covenants on it with debt that has no restrictions on it.

[spennysimmo] 25/11/2010 19:09

RNS released saying that the funds raised through these notes will be used to pay bank debt. Would someone mind please explaining what these notes are as I cannot get my head around it. Where is this £350m actually coming from. Are they robbing Peter to pay Paul?

I'm not familiar with this so if someone is and could explain I would be grateful.

I presume that if they reduce their bank debt by £350m then they have not reduced their overall debt, but just spread it between the banks and the other lenders of this £350m? If so, then surely by reducing their debt with the banks so that they can in effect borrow more again to buy more land they will end up with even higher debt in total?

TIA.

[hiq] 25/11/2010 17:35

Keeps admin costs low