Aerospace and defence group Cobham PLC (LON:COB) lost nearly a fifth of its value on Tuesday after it unveiled plans for a £500mln rights issue to shore up its finances.
Shares in the company dropped 42.7p to 172.5p as Cobham proposed to raise the cash in the second quarter to reduce the risk of breaching its banking covenants.
It said its debt could be close to the net debt-to-EBITDA covenant ratio of 3.5x at the next covenant testing date of June 30.
Cobham said in a trading update: “Having considered its options, the board has concluded it is in the group's best interests to reduce indebtedness on a more long-term basis.
“Accordingly, the board has decided to raise sufficient new equity to reduce the net debt-to-EBITDA ratio to around 2x.”
It also said it had decided not to increase its dividend for 2016, meaning the payout would be the same as in 2015.
Cobham makes avionics, communication & navigation equipment and antennas for major aircraft manufacturers such as Boeing (NYSE:BA) and Airbus (EPA:AIR).
The group's first quarter profits fell to £15mln from £50mln a year ago, which it blamed mainly on three issues.
The group said operational issues in its wireless business resulted in delayed shipments and a one-off charge of £9mln.
It also blamed increasing headwinds in its commercial “fly-in fly-out” business and higher costs on a few advanced electronics development programmes.
Cobham said in a trading update that trading in the rest of the group was meeting its expectations and its order book was slightly ahead of the year-end position on a like-for-like basis.
Chief executive Bob Murphy said: “For the full year, the scale of the order book and the impact of the cost reduction programme that we are currently implementing, will mean the profit shortfall is expected to be limited to about £15mln.
“We remain confident continued investment in technology and know-how will enable us to maintain our leading positions in markets with good prospects.”
Bank of America Merrill Lynch and Jefferies International have fully underwritten the rights issue on a standby basis.