Foxtons seeks debt-for-equity deal

Published 13th Apr 2009

Foxtons, the now cash-strapped estate agency that came to epitomise the London housing boom, is in talks with banks about a debt-for-equity swap that would see lenders agree to write off between £60m and £90m in return for taking a large stake in the company.

Foxtons is owned by BC Partners, the private equity firm, which bought the agency from its founder, Jon Hunt, for £370m in 2007, not long before the credit bubble burst. Since then, Foxtons has breached its banking covenants after a 60% fall in the sale of flats and houses in the capital, which has hammered its bottom line. Current sales activity is at around a quarter of the level notched up before the credit crunch.

The severity of the downturn means that Foxtons is finding it hard to meet interest repayments of around £30m a year, while BC's Foxtons investment is virtually worthless.

Bank of America and Mizuho, the Japanese bank, have asked BC to inject £50m of extra capital into Foxtons, but it has refused and has been pushing for the banks to "take a haircut", which means writing off some of the £260m that BC borrowed to fund the deal.

The banks have agreed in principle, but only in return for taking equity and as part of a refinancing package that is yet to be signed off. One source said: "Bank of America still wants BC to stump up a little more cash, so there is a way to go before things are finally settled."

There is speculation in the City that BC, which owns Fitness First, the health clubs group, and Picard Surgelés, the French frozen foods business, may be trying to sell Foxtons to another private equity group.

Hunt, who set up Foxtons in 1981, has denied rumours that he is planning to re-bid for the company, a sign that would inevitably be interpreted as meaning that the property market had bottomed out. Foxtons is a high-profile chain, known for its glitzy high street locations as well as its trademark Mini Coopers, emblazoned with the Foxtons logo.

Earlier this year, BC's London office chief, Andrew Newington, admitted for the first time that the acquisition of Foxtons was "a mistake" and that, with hindsight: "We got it wrong."

In the 1990s, Hunt rocked the estate agency industry when he told staff that instead of undercutting rivals on commissions, they should charge more, typically 3% of the value of a sale. In return, Foxtons agents reassured sellers that they could get a significantly better price than competitors. Some commentators have blamed Foxtons for stoking the London housing boom.

Source: ' Observer '

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