McCarthy & Stone in crisis talks over £800m debt

Retirement homes builder calls in Rothschild to help restructure its borrowing as fall in house prices stops pensioners selling up

Howard Phillips, the chief executive of McCarthy & Stone, has called in bankers NM Rothschild to restructure its £800m debt as the credit crisis wreaks havoc in the housebuilding sector.

Mr Phillips has hired Rothschild because of worries over its debt repayments. The board and representatives of leading shareholders, including embattled bank HBOS and Scottish philanthropist Sir Tom Hunter, held an emergency meeting with Rothschild on Wednesday to discuss how to avoid breaching debt covenants.

McCarthy, a retirement homes business, was taken private in a £1.2bn deal in 2006 but has since been plagued by difficulties. Many of its main customers, the newly retired, have been unable to sell their homes to move into a McCarthy property. It confirmed last month that it would cut 110 jobs from its 1,000-strong workforce.

However, the shareholders believe that its fortunes will improve once the property market recovers. McCarthy is the dominant player in the retirement housing sector, so its fundamental business plan is thought to be sound.

Rothschild is looking at ways in which McCarthy can restructure its debt, including delaying its key repayment dates, which run from 2012 to 2014. "All options are open to debate. McCarthy & Stone has had to look at the capital structure in light of market problems," said a source close to the company.

HBOS, which owns 20 per cent of the group, is heavily exposed to housebuilders through its stakes in companies including Miller and Crest Nicholson. The latter was bought in a joint venture with West Coast Capital, the investment group run by Sir Tom.

A source suggested that several of these businesses are in the process of restructuring their debt. Shares in HBOS, which is to issue a trading update later this week, have fallen below their discounted £4bn rights issue offer price.

A source close to McCarthy added that shareholders would ultimately "make a lot of money" out of their investments.

Barratt, whose shares fell by nearly 40 per cent last week, is also thought to be close to breaching its banking covenants. It too is in negotiations with its bankers about restructuring.

Although Barratt's chief executive, Mark Clare, said the company would meet its profit targets this year, the shocking fall in its share price means that it could face a debt-for-equity swap. Barratt has now fallen out of the FTSE 100 and could soon drop out of the FTSE 250.

Barratt borrowed heavily to buy rival Wilson Bowden last year, and former management is known to believe that this has led to the company's slide.

HBOS is thought to have been attacked by so-called "short-sellers", who look to force down share prices to make money. The Financial Services Authority is investigating the matter.