Crest Nicholson may have to convert its debt into equity



Crest Nicholson

Crest Nicholson

US fund Varde – the largest lender to house builder Crest Nicholson has proposed converting the debt into equity and has been supported by majority of lenders. If approved, this will be the second such conversion in three years.

The move will reduce the debts on the books of Crest substantially. Varde alone owns 35% of the total £500 million loans of Crest and has claimed that more than half the lenders have supported its move at a lender’s meet on Monday.

Varde will require the backing of 75 percent of the 20 lenders consortium and apparently a consensus is evolving. One person familiar with the developments said: “Varde has got some like-minded funds on side and they see there is value in the business long term, but it needs to have an appropriate capital structure to operate successfully.”

People knowledgeable with the developments say that Castle Hill and New Amsterdam Capital supports Varde’s proposal.

Crest has been doing well in sales and its debts are due for refinancing in 2012. The board of Crest supports Varde’s proposal and have advised constituting a new board after dissolving the present one, to better represent shareholder base.

If Varde’s proposal is implemented, Crest’s capital structure will be comparable to its peers. Its debt to net assets ratio – Crest’s work in progress and land holdings are worth £300 million; will be at par with industry benchmark.

On previous occasions Varde had proposed writing off an estimated £150 million worth payment in kind loan and converting £200 million worth senior debts to equity. However, the plan didn’t materialize as some of the lenders were unwilling to accept a write down for the second time.

The vetoing of a possible capital restructure by some of the lenders is “actively destroying value” of the company, observed one person involved in the negotiations.

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