Sport Media in breach of banking covenant

Sport Media Group said it was notified yesterday evening (6 January) by the company's bank that it is in breach. It added that "revised facility terms continue to be negotiated and, in the interim, the bank has provided a two-month extension to the current facility".

The company said it is seeking to remedy the breach through further discussions with existing finance providers and is also exploring "a number of alternative financing sources and structures".

"The board believes a refinancing solution will be reached within the extension period and will continue to update the market with regards to future developments as and when they occur."

Banking covenants, also called debt covenants or financial covenants, are agreements between a company and its creditors that the company should operate within certain limits and they are a condition of borrowing. Conditions can vary. For example, a company may agree to limit other borrowing. Other limits can include levels of interest cover, working capital and cash flow.

A breach of a banking covenant can allow creditors to demand immediate repayment, although this rarely happens in practice. A breach of covenant can also lead to a renegotiation of the terms of debt.

In August, Sport Media Group announced that its pre-tax profits for the year to 31 July would surpass £6m, despite a flagging advertising market and a troubled start to the relaunch of its Daily Sport newspaper.

In May, the group bought Flip Media, the publisher of lads' magazine Front and DVD World, for £265,000, in a move to diversify beyond the Daily Sport newspaper.