Shares in Taylor Wimpey, the housebuilding group, jumped 10 per cent this morning to 55p on news that the heavily indebted construction company had appointed NM Rothschild to negotiate a covenant waiver with its lenders.

Taylor Wimpey tried to recapitalise its balance sheet last month but failed in its attempt to raise almost £500 million. The housebuilder was forced to tell the stock market that it had been unable to raise all the money in it had asked for, in time for a self-imposed deadline.

It is now hoping to strike a similar deal with lenders to that achieved by rival housebuilder Barratt, which also used NM Rothschild to negotiate a covenant waiver with its lenders and private placement holders.

Taylor Wimpey has a market value of just £528 million but carries £1.7 billion of debt, a legacy of last year's merger between Taylor Woodrow and Wimpey. The company said recently that there was no danger of it breaching its banking covenants before February but made it clear that it wanted to work out a solution sooner rather than later.

Fitch, the credit rating agency, said earlier this week that the most indebted privately-owned housebuilders faced considerable default risk in the next 12 months, as a result of the sharp downturn in the UK housing market.

"While much media attention has focused on the recent difficulties of large, high-profile builders, such as Barratt Developments and Taylor Wimpey, we believe the most at risk are LBO house-builders that tend to be privately-owned mid-tier players operating in regional or niche markets, with high levels of debt," Ewan Macaulay, associate director in Fitch's corporates team, said.

The housebuilding industry has seen an unprecedented drop in UK mortgage lending and a weakening economy. Sales volumes have fallen by almost half at some builders, with profits expected to plunge.

Rothschild's debt advisory team will work alongside Taylor Wimpey's corporate advisers, JPMorgan Cazenove and UBS, to find a refinancing deal.

At the same time, the company is understood to have held talks with private equity groups about providing new debt finance.

The company is not expected to announce a deal with lenders by the time of its interim results on August 27.

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