Tool hire group HSS is looking to raise £54million from shareholders as it warned that a 'prolonged' challenging economic situation may see it break agreements with its lenders.
The company, which recently announced plans to close down half of its branches, said the proposed capital raise will allow it to stay within its debt covenants - or the obligations it has to meet in order for lenders to keep lending it money.
It said shares will be placed at 10p each - a 58 per cent discount to Friday's closing price of 21.20p - and that three of its major investors had already agreed to inject £43.5million.
Cash call: HSS Hire is looking to raise £54m before the end of the year
At the beginning of October HSS announced plans to shut down as many as 134 of its 240 branches, resulting in some 300 staff losing their jobs.
Today, HSS said cost reductions had so far allowed it to stay within the covenants agreed with lenders.
However, as economic challenges from Covid-19 look set to continue for 'a prolonged period', it is possible that the business could breach its covenants at the end of this year.
Therefore it would be 'prudent' to raise cash before 2020 is over, the board decided.
It said: 'Given that the challenging economic environment may last for a prolonged period, it is possible that without the Capital Raise these covenants may be breached when tested at the end of 2020.
'Having fully reviewed the options available to the Group, the Board has concluded it is prudent to raise capital before the year end.'
HSS said £15million of the funds will be used to pay off debt in January, and the rest will be invested in its technology and hire fleet.
Major investors Toscafund Asset Management, Ravenscroft, and Exponent Private Equity have all backed the fundraising.
'This transaction is a major vote of confidence from three shareholders representing over 75 per cent of the company's shares,' said chairman Alan Peterson.
'This capital injection will enable the group to further reduce its leverage - one of our foremost objectives - and gives us a strong platform from which to continue to implement change and drive growth.'
HSS makes most of its money by renting tools to business customers in the UK and Ireland, though a small proportion of its rentals are also used by private customers.
It was badly hit by the closure of most building sites during lockdown, as a 22 per cent fall in revenues caused losses to widen to £12.5million in the first half of the year, over £5million more than last year.
It said that the pandemic had accelerated its investment in technology, which reduced the need for many sites to stay open.