Songbird warns of covenant breach as NAV falls 70%

The AIM-listed 61% owner of Canary Wharf Group saw its net asset value fall from £1.51 a share at 31 December 2007 to just 64p a share in 2008.

Its net assets plummeted 80.4% last year from £2.3bn to £459.7m, while the value of its property portfolio fell from £6.7bn to £4.9bn – equating to a £1.8bn writedown.

As a consequence of the massive fall in values, Songbird said there was: ‘A material risk that the company may subsequently be in breach of its financial covenants within the next 12 months.

‘If a covenant breach were to occur then the lender would have the right if it chose to request early repayment of outstanding borrowings. This represents a material uncertainty which may cast significant doubt on the group’s ability to continue as a going concern.’

It said that it continues to meet its covenant tests and expected to pass its next test on 15 May, but has appointed Rothschild to advise it in the refinancing of an £880.8m loan set to expire in May 2010.

It said: ‘The board is exploring the various options open to the company with the goal of putting in place a more appropriate long term financial framework for the company.’

At its 31 December valuation, the company’s combined loan to value ratio increased to 86.1% - approaching its loan covenant of 87.5%. – as gross debt increased by £480m to £5.48bn last year.

Underlying profit before tax was up from £102.m in 2007 to £175.4m last year.

The equivalent yield in its £7.9m office portfolio – which is 99.7% let – increased by 130 basis points to 6.5% in 2008.

Songbird’s shares dropped 25% to 25p this morning on the back of its results.