Banks to rescue housebuilders - for their own good

By Elena Moya - Dealtalk

LONDON (Reuters) - Banks are expected to rescue Britain's troubled housebuilders such as Taylor Wimpey Plc (TW.L), as pushing them into insolvency would only make matters worse for lenders, restructuring professionals said.

Shares of Barratt (BDEV.L), Persimmon (PSN.L) and Bovis Homes (BVS.L) tumbled on Wednesday after Taylor Wimpey, Britain's largest housebuilder, said it failed to raise the 500 million pounds ($992.9 million) that it said it needed just two days ago to survive the falling UK housing market.

Yet HSBC HSBC.L, Taylor Wimpey's main banker along a syndicate of banks, is likely to aid the company by extending waivers, relaxing bank covenants or swapping debt for equity.

"I can't see Taylor Wimpey going bust -- it's a timing issue," said Kevin Hewitt, Senior Managing Director at FTI Consulting, a restructuring advisory firm in London.

"In terms of where the market is, there's quite a lot of exposure out there, banks and others will work together to find a solution."

A wave of insolvencies in the housebuilding sector would make matters worse for banks already badly hurt by the credit crisis, causing fresh loan write-offs.

"People would be supportive of these companies, banks don't want more problems on their balance sheets," the head of a leading restructuring advisory firm said, under the condition of anonymity.

Global banks have seen more than $400 billion in write-downs and losses triggered by the collapse of the U.S. sub-prime mortgage market one year ago.

FAILED ATTEMPT

Taylor Wimpey's market value roughly halved on Wednesday from around 633 million pounds on Tueday after its brokers UBS AG (UBSN.VX) and JPMorgan Cazenove failed to raise its cash.

The group -- which has a 1.65 billion pound loan and a credit facility of 1.19 billion pounds -- now faces worsening sentiment as investors fear an economic slowdown, pushed by a falling housing market and rising inflation.

"We would be very hesitant to invest in a consumer-related deal at the moment, including the housing sector," said Buchan Scott, partner and head of investor relations at Duke Street Capital, a London-based private equity firm.

"It's not a market that's going to show much growth for a significant amount time."

Investors from the Middle East, including sovereign wealth funds, which have been pumping funds in Europe as domestic banks shy away from risk, may also prove hard to attract.

"If UBS has failed to get investment interest from institutional investors or the likes of TPG, you have to wonder why any sovereign wealth fund would be interested," said an investment banker who didn't want to be identified.

Some smaller house builders will fail to survive in such market, Orrick's Fennessy said.

"I would not be surprised to see failures within the sector," Fennessy said.

But the bigger companies, with more support, may well survive as big-profile failures would hurt banks and deeply dent consumer confidence.

"You can imagine what that would do on an already fragile economy, it'd just be a disaster: The man on the street can relate to housebuilders, more than investment vehicles, so if this happens, he will think that this is getting quite serious," said FTI's Hewitt. "There's too much to be lost."

(Additional reporting by Tessa Walsh and Eleanor Wason in London and Walden Siew in New York)