Paper and packaging giant Smurfit Kappa said yesterday that it would be able to reduce the cost of its debt after reaching a new agreement with its lenders.

In a statement to the Stock Exchange, the group said it had received approval from its lenders to amend certain terms of its senior credit facilities.

This should lead to lower interest payments on the company's debt, which stood at €3.5 billion at the end of the first quarter this year.

Group finance director Ian Curley said yesterday the group is pleased to have completed this amendment as it will allow for "greater financial flexibility".

A spokesman for the group declined to give further details, but a statement issued yesterday by Smurfit Kappa indicated that the amendment included a reduction in margin across each of its senior credit facilities.

Smurfit Kappa flagged efforts to reach this goal at the end of June.

The group was formed in a merger between Jefferson Smurfit and Dutch firm Kappa Packing in 2005, and returned to the stock market in March of this year.

The enlarged group's significant debt levels reflect the fact that both companies had been the subject of leveraged buyouts before coming together.

Smurfit Kappa is now seeking to reduce its debt, and in its first-quarter results it reported that it had succeeded in cutting net debt by €1.3 billion to €3.5 billion.

When the company floated in March, it said all but €110 million of the money raised from the share sale would be used to pay down its high-yield notes.

The market reacted positively to yesterday's debt restructuring announcement, and its share price rose by 13 cent to €18.75.

Smurfit Kappa is due to release its second-quarter results on August 15th.