Northgate’s desperate £108m double issue

It is raising £108 million of cash through two share issues but has had to promise to pay more than twice that amount — £226 million — to its banks and holders of its US loan notes over the next 18 months.

"It looks pretty much as though the bondholders had them over a barrel," said one analyst. "It was accept our terms or say goodnight."

The firm simply admitted that if the new funding fails it will breach its bank covenants next month.

The deal has also put paid to chief executive Steve Smith's early retirement. He was due to stand down at the end of the month. Instead the banks have insisted he hangs around for almost another two years.

In a highly unusual fundraising Northgate is planning to place 50 million shares at 60p each with old and new institutional shareholders to raise £30 million.

It will then follow this with a rights issue offering a staggering 1.2 billion new shares at just 7p each on a 10-for-one basis. That will raise £78 million after City adviser expenses of £6.4 million.

Northgate shares rose 11⁄4p to 701⁄4p. Two years ago they were changing hands at more than £11 and four years ago Guy Hands' private-equity outfit Terra Firma had a £12-a-share takeover bid rejected.

In the year to end-April Northgate lost £196 million after write-offs of £218 million. Underlying profits fell by two thirds to £27.5 million.