McInerney to break bank covenants

HOUSE BUILDER McInerney expects to break guarantees it has given to its banks later this month.

The group said in a statement yesterday that it expects to breach certain covenants with its lenders when they are tested later this month. The company added that the issue is being dealt with in talks with its banks that are currently under way.

The group expects to break two elements of its credit agreements with the banks. The first involves it meeting certain sales targets, which it has failed to do. The second relates to it maintaining a certain net worth relative to its liabilities.

McInerney has been forced to radically write down the value of its land banks in Ireland and Britain since the beginning of 2008. At the end of June, it cut its estimate of the value of these assets by €156 million.

Overall, the value of its land bank in Ireland has been halved over the last two years, while it has knocked 40 per cent of the worth of its British property. All of these write-downs were “non cash” as they involved restating the assets’ value on the company’s books.

The group has been in negotiations with its banks since the mid-year stage. A statement yesterday indicated that it is optimistic about the talks.

“The directors anticipate reaching a positive outcome to the banking negotiations prior to the next results announcement in March 2010,” it said in a statement.

McInerney’s primary business is building and selling new homes in Ireland and Britain. The company said yesterday that it is continuing to experience poor trading conditions in both markets.

“In Ireland, the group’s house sales remain flat,” McInerney said. “Low consumer sentiment persists and this, coupled with a lack of mortgage availability, is curtailing market demand.

“The prospect for any immediate change to the current market conditions is uncertain,” the company added.

In Britain, its sales have stabilised, but at what it said is a very low rate. McInerney said that it is reviewing all elements of the business that do not generate any cash.