Debt for equity swaps: Taylor Wimpey

As I have been saying for a while, the only sensible way to 'fix' the banks is debt-for-equity-swaps, i.e. medium term liabilities (bonds etc that the banks have issued to raise money from investors) are converted to a permanent claim on the business (i.e. shares). A lot of people respond with incredulity, "If it's so simple, why didn't UK banks just do it?". You can make up your own answer to that - conspiracy or cock-up - but here's another example from real life:

From today's FT:

Taylor Wimpey is set to yield to pressure from its lenders to offer them some equity as part of a package to refinance its £1.9bn net debt pile. The housebuilder’s banks and other lenders are set to own a single-digit stake in the business, and to charge much higher interest rates in exchange for waiving current conditions surrounding the debt, according to people familiar with the situation...

The equity aspect will sweeten the deal for lenders, which have so far not committed to waiving Taylor Wimpey’s debt covenants ... However, some analysts questioned the benefits of any deal for shareholders...*

In other words, private businesses like Taylor Wimpey can - and do - sort this out with private banks without the need for government involvement. If the government had resisted the tempation to part-nationalise UK banks using taxpayers' finest, then ultimately this is what would UK banks would have done (they are supposed to be world leader's in this sort of 'financial engineering').

Just sayin', is all.

* Of course, depending on the precise terms of the deal, existing shareholders might come out better or worse off. But seeing as the 'total enterprise value' is constant , whether financed by banks loans or share capital (see also The Miller and Modigliani Theorem), it is not too difficult to arrive at a solution satisfactory to shareholders as well as banks.