Taylor Wimpey Loses Almost $3 Billion in 2008

U.K.-based parent company of Taylor Morrison says it's successfully restructured its debt.

By Teresa Burney

Taylor Wimpey, the U.K-based parent company for U.S. home builder Taylor Morrison, announced April 30 that it lost £1.84 billion in 2007, roughly US$2.9 billion, but also that it has successfully restructured the debt on which it was in danger of defaulting.

The company’s North American division, which also includes Monarch Homes in Canada as well as Taylor Woodrow in the United States, closed 5,421 homes in 2008, an improvement over the 5,197 that it sold in 2007. It did not break out Canadian sales versus American sales in the report.
To make those sales, the company reduced prices by 3.8%. The average selling price in North America in 2008 was £175,000 ($260,406) compared with £182,000 ($270,823) in 2007.

Taylor Wimpey management is hopeful the market has bottomed. “The first signs of industry consolidation have appeared in recent weeks, suggesting that the market may be close to stabilizing,” the company’s announcement said.

“In North America, housing market conditions have been more stable in recent weeks, however the state of the U.S. economy as a whole remains a significant concern,” the company’s trading statement said. “With the impact of government stimulus now being felt, there are tentative signs of improving conditions. The scale of the market correction has been dramatic and has resulted in many markets falling well below long-term norms. As general economic conditions stabilize, there is the potential that some of those losses will reverse quickly.”

The financials of the giant company, formed by the merger of two U.K. home builders George Wimpey and Taylor Woodrow two years ago, were deteriorating even as the deal was being finalized in 2007. The U.S. market started showing symptoms of the downturn first, and then the housing and economic malaise spread to the United Kingdom.

The companies’ slow sales would have put the company in default on its £2.46 billion of debt if Taylor Wimpey had been able to get agreement with its many debt holders to restructure it to meet the slower market.

Under the new debt terms, the company will have access to £2.47 billion of debt with a maturity debt reset to 2012. The new debt will be more costly than the former debt. Margins and coupon rates for the borrowings equal a 4.55% annual interest rate increase. Plus, there's an additional 1.5% "payment in kind" fee. That fee can escalate quickly if the company fails to meet debt reduction goals.

Under the terms, the company's 1.5% payment in kind fee will climb to 2.5% if it isn't able to cut its debt by 150 million pounds by June. It has another year to cut debt by £500 million total by the end of June 2010 or face an additional 5% interest rate. If the £500 million goal isn't met by December 2010, the total payment in kind interest rate will have grown to 10% total a year.