Foxtons stuck in housing market slump

The future of another one of Britain's most recognisable high street brands was hanging in the balance last night after it emerged that the estate agent Foxtons had breached lending agreements with its banks.

The buyout firm BC Partners, which bought Foxtons in May 2007 for £390m, is reluctant to pump any more cash into the company after worse-than-expected market conditions pushed it into crunch talks with its lenders, including Bank of America and Mizuho, to whom it owes about £260m. Foxtons is one of London's biggest estate agents, known for its fleet of branded green and yellow Minis and its flashy cafe-style offices. It has seen a slump in trade as the property market goes through one of its worst crises in recent history.

After years of growth, London house prices fell 15 per cent last year, according to the Nationwide. The capital was also one of only four regions in the country where the rate of price falls accelerated in the fourth quarter.

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But even worse for Foxtons than theprice falls was the decline in the number of transactions as the mortgage market dried up.

When BC bought the company and secured the terms of its financing, it had provisioned for a fall of up to 30 per cent in house sales. Such a decline from the market peak of 2007 would have amounted to the lowest rate of house-buying for 30 years. But the meltdown of recent months has blown away BC's forecasts and translated into a disastrous 60 to 70 per cent collapse in London house and flat sales. "We made the wrong call," said BC's managing partner Andrew Newington. "The market decline was way too steep and we didn't anticipate it – we were wrong."

BC Partners has been in talks with Foxtons' banking syndicate since last summer, but the firm finally breached its banking covenants, which are measured in terms of its debt-to-profits ratio and its interest cover, in the final quarter of last year. This allows the banks to push the company into receivership if they so choose. And while BC Partners could yet pump cash into the business to keep it going, the uncertainty surrounding the housing market this year could lead it to hold on to its cash rather than pump more in, Mr Newington said. The situation makes the decision of Foxtons' founder, John Hunt, to sell the company in May 2007 a shrewd one.

Bank of America and Mizuho declined to comment yesterday. However, a source close to the banking syndicate said that the banks are unlikely to force the company into administration because they believe it does not face an immediate need for cash and is expected to bounce back strongly once the housing market recovers.

None of the debt has been syndicated – sold on to other banks – so Bank of America and Mizuho own all of its debt and "both believe in the future of the company and its management team", making it easier to keep the company going, the source said.