Refinancing agreement with banks secures SMG's future

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SMG is thought to have been saved from having to break itself up after the Scottish media company said it was close to a new deal with its banks.

The group, the owner of Virgin Radio, The Herald newspaper in Glasgow and Scottish TV, is thought to have breached its banking covenants, prompting speculation that its lenders, led by Clydesdale and Barclays, would insist it sold assets to pay down debt.

However, yesterday it said it had made "good progress" in discussions with its banks and had reached an agreement, in principle, on the key terms of a funding that would satisfy its needs until June 2003.

Industry sources said they expected an announcement during the next two weeks and said disposals or a break-up plan were not on the agenda. "It looks like it's 100 per cent done and it's just a matter of completing small bits of admin now. It's given them headroom to pursue their strategy for the medium term," one said.

SMG, which is estimated to have some £390m of debt, is thought to have struggled to meet the interest payments on its borrowings after a collapse in advertising revenues.

Consultants from Deloitte & Touche were brought in to conduct a strategic review of the company, after acquisitions made at the top of the market sent debt soaring.

Simon Baker, an analyst at SG, said: "This takes the pressure off from the need for any distress sales, which would not have been in shareholders' interests. I still think it will dispose of assets but it now has 15 months to go."

SMG was forced to delay its 2001 financial results, due to be published this week, because it had failed to agree new terms with its bankers in time. It is now thought that it will report towards the end of this month, once the new arrangements with lenders are finalised.

SMG also said yesterday that its underlying performance was "in line" with market expectations. Its shares closed up 5 per cent at 146p.

Granada, the ITV company, owns a 16 per cent stake in SMG, putting it in pole position to pick up the television interests. It is thought that SMG will inevitably sell off its Grampian and Scottish TV licences as a single ITV company is created in the next couple of years.