MyTravel faces shareholder revolt over plans to raise debt

MyTravel, the tour operator which narrowly avoided financial collapse, faces a shareholder revolt over plans to increase its debts.

The Association of British Insurers, which represents some of the most heavyweight institutional investors, has called on its members to vote against MyTravel's plan to remove an upper cap on the group's borrowings. The ABI said the proposed change to MyTravel's articles of association contravened its guidelines. "The proposal to lift the limit on borrowing may be of concern to shareholders," an ABI spokeswoman said.

The company argues the change would permit it to bring some of its off-balance-sheet debt on to the balance sheet. Without approval at the AGM this week, MyTravel's financial recovery could be stymied by its borrowing limits.

The company's articles of association prevent directors from borrowing more than three times the company's "adjusted capital and reserves". The restrictions could become "inappropriate and unworkable in relation to the group's financing arrangements and possible developments in accounting practice", the group told shareholders.

But observers fear that increasing MyTravel's debt would lead to more misery for shareholders if the company's financial problems deteriorate. Debt holders rank above shareholders in any division of assets in the event of a company going into administration. The group's shares have fallen from 283.5p to 9.5p in the past 12 months, cutting its market valuation from more than £1.4bn to £47m.

MyTravel ran into trouble last year after issuing several profit warnings and unveiling a black hole in its accounts. It staved off collapse in November by clinching an eleventh-hour deal with its banks on a £250m credit facility, but it still needs to complete a refinancing of a £210m convertible bond and £220m of preference shares.

The ABI's guidelines state that a company's articles of association should contain a limit on the total level of borrowings. "We want to see them come back into line," a spokeswoman said, although she conceded this "may take some time while they do their restructuring".

The ABI said there were also "a number of governance issues". Several shareholders were unhappy about the elevation of Eric Sanderson to chairman following David Crossland's decision last month to sever ties with the business he founded more than three decades ago.