Shares in Britain's biggest food manufacturer Premier Foods fell over 50 per cent today as traders cited market speculation that the company had, or was about to, breach banking covenants.
However, a source close to the company said Premier would have had to issue a stock exchange statement if it had breached, or expected to breach, conditions attached to its loans.
The company, which acquired Campbell's Irish operations in 2006, declined to comment. It issued a statement earlier this week saying it was looking at proposals to reduce debt levels.
Martin Deboo, analyst at Investec Securities, said he was surprised by the rumours.
"There is no formal covenant test until December 31st. They made their covenants at the end of the half year and my view is that they will pass that December covenant test," Mr Deboo said.
"There would have to be something very, very bad about either trading or working capital in October to believe they're anywhere close to consuming their facility," he added.
Shares in Premier were down 31.4 per cent at 24 pence this morning having earlier dropped to a new lifetime low of 16 pence.
On Monday, Premier said it was examining proposals from several parties that would enable it to cut its debt, which reached £1.8 billion at the end of June, far exceeding its current market valuation of just over £200 million.
In March this year, it cut its dividend and reorganised its finances as it struggled with the rising cost of ingredients and the impact of the credit crunch.
A report in this week's Sunday Telegraph said Premier had held talks with private equity firm CCMP Capital about a major cash injection, amounting to "several hundred million pounds".
Premier declined to comment on specific options for refinancing. Analysts have said the disposal of some assets is also a possibility. Premier said on Monday trading had been in line with its expectations.
Reuters