PRESS RELEASE: Fitch Affirms Taylor Wimpey at 'B'; Outlook Stable

The following is a press release from Fitch Ratings: Fitch Ratings-London-08 July 2010: Fitch Ratings has today affirmed UK house-builder Taylor Wimpey Plc's (TW) Long-term Issuer Default Rating (IDR) at 'B' with a Stable Outlook. Fitch has also affirmed TW's Short-term IDR at 'B' and senior unsecured rating at 'B-'. TW is one of three major UK house-builders and also has a strong presence in the US homebuilding market. TW currently has over GBP1.9bn of debenture loans and revolving credit facilities that need to be refinanced before maturity in July 2012. The company expects net debt to be less than GBP650m at H1 2010, but TW's ratings remain constrained by concerns that it may not be sufficiently cash generative over the coming two years to refinance what Fitch estimates to be a funding requirement of between GBP1.0bn and GBP1.3bn. Market conditions and lending appetite - two major factors outside TW's control - will affect the company's ability to further de-leverage ahead of the critical refinancing in 2012. Although the UK market has stabilised, with TW able to increase both its UK selling prices in H1 2010 and its 2010 order book, there are uncertainties for the UK housing market in 2010 and 2011. These include higher unemployment, lower government spending, a public sector salary squeeze and tax rises which may lead to renewed market weakness and rising interest rates. This could reduce TW's cash flows and ensure significant de-leveraging may not be achievable. A successful re-financing will also depend on lenders' appetite for rolling over UK house-builder debt. The company's outstanding pension deficit will have to be addressed as part of any successful debt refinancing. Fitch estimates these liabilities at around GBP955m at present (on a buy out basis based on a discount rate of 5.70% and a 15 year gilt yield rate of 3.86%). The company is actively managing its pension fund liabilities and recently announced that the George Wimpey Staff Pension Scheme will close to future accrual on 31 August 2010, which is a mild credit positive. TW's ratings could be upgraded if the company completes a successful refinancing, and leverage remains below a adjusted net debt/funds from operations (FFO) metric of 5.0x and where cash from operations (CFO)/net debt was at least 20% for two consecutive years. Once the market picks up and TW begins to make significant land purchases, Fitch will use both a FFO/net debt metric (as this metric will better measure real underlying profitability) as well as a CFO/net debt metric (as a CFO metric includes positive working capital movements where a house-builder builds out a land bank but does not replace land). With over GBP1.5bn of non-cash land write-downs in FY08 and FY09, Fitch will not refer to EBITDA based metrics as this measure no longer reflects a meaningful financial metric for TW. Downward rating pressure would include an absence of any significant de-leveraging in the next two years, lack of progress towards a limiting of pension obligations and refinancing by mid 2011, increased pressure on financial covenants and a further UK housing market downturn. In FY09, TW generated strong cash flow as revenue contracted and working capital unwound (CFO/net debt 30% at FY09, versus 11% at FYE08). However, this is unlikely to re-occur on the same scale in 2010 and 2011, as TW cautiously re-invests in new land bank/sites. This could expose TW in the case of future market weakness, although it is concentrating on generating cash by achieving price improvement rather than volume, while limiting land purchases and ensuring tight control of work-in-progress. While unit sales are expected to be slightly lower in H1 2010 than in H1 2009, achieved prices have been higher. TW's senior unsecured debt remains notched down from the Long-term IDR to reflect subordination concerns. Fitch believes that up to GBP1,183m of creditors rank ahead of TW's senior unsecured obligations under a default scenario, including GBP975m of pension liabilities (as estimated by Fitch), and thus senior unsecured creditors may recover only approximately 29%. Applicable criteria, 'Corporate Rating Methodology', dated 27 November 2009, are available at www.fitchratings.com. >> Fitch has made major improvements to its credit research on EMEA and AsiaPac corporates. To view these improvements, visit our 'Clear Thinking' web page at http://clearthinking.fitchratings.co.uk/Index.html Contact: Jean-Pierre Husband, London, Tel: +44 (0) 20 7417 6304; Ewan Macaulay, London, Tel: +44 (0) 20 7682 7507. Media Relations: Peter Fitzpatrick, London, Tel: + 44 (0)20 7417 4364, Email: peter.fitzpatrick@fitchratings.com. Additional information is available on www.fitchratings.com. Related Research: Corporate Rating Methodologyhttp://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=489018 ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. (END) Dow Jones Newswires July 08, 2010 04:34 ET (08:34 GMT)