Pendragon launches rights issue to deal with debt

Pendragon, Britain's biggest motor retailer, is to raise £71m through a discounted rights issue in order to tackle its debts.

New shares valued at just 10p each will be offered to existing shareholders on the basis of nine for every eight already held, the company said yesterday.

Shares in the company initially fell almost 24 per cent before ending down just 0.25p at 21.5p, giving an effective price after the rights issue of 15.4p.

Alongside a newly negotiated debt refinancing package which has extended the maturity of the group's borrowings to 2014, on improved terms, the money raised will enable Pendragon to pay down its debts and re-start dividend payments from next year.

Pendragon – which owns the Stratstone, Evans Halshaw and Chatfields car dealership chains – has also agreed a plan that will eliminate the group's pension deficit and create cash savings of £46m by the end of 2014.

Its chairman, Mike Davies, yesterday described the measures as "an important step in the evolution of Pendragon".

"These proposals recapitalise the group, providing it with greater strength and flexibility," Mr Davies said. "We are now better placed to pursue our clear strategy and implement our operational initiatives, which we believe will create further value for shareholders."

The company also confirmed it is trading in line with forecasts.