Corus, one of Europe’s biggest steelmakers, has clinched a vital deal with its banks that will see the company’s lending agreements relaxed, putting it on a much stronger financial footing.

A banking syndicate led by Citigroup, Standard Chartered and Royal Bank of Scotland has agreed to reset the banking covenants on £3.7 billion of debt used by India’s Tata Steel in its £6.2 billion takeover of Corus in 2007.

The deal could mean a lifeline for Corus’s Teesside operation, which is facing closure after its top four international customers cancelled contracts with the 3,000-acre plant. The site in Redcar has announced 2,000 job losses out of a total Corus workforce in the UK of 23,000.

The arrangement will improve the financial position of Corus’s British operation, Tata Steel UK. As part of the deal, the Indian parent company will inject £425m into Tata Steel UK, with £200m being used to pay off debts.

The agreement also pushes back any testing of the company’s covenants until March 2010. Crucially, the deal has not resulted in any added interest costs for the remaining life of the loan.

Kirby Adams, the Corus chief executive, said: “This overwhelmingly positive response from our lenders is a mark of their underlying faith in our business, even as we explore options for Teesside Cast Products.”

Corus has been hit hard by the paralysis gripping two of its main markets, construction and car manufacturing. Steel prices, which had been driven to record highs by demand from China, have more than halved in the last year.

Koushik Chatterjee, chief financial officer for Tata Steel, said: “The covenant-resetting agreement demonstrates the strong relationship of the Tata Steel Group with its lenders and underlines the commitment of Tata Steel to its European operations.

“It is important to highlight that, despite the challenging financial environment, there will be no increase in the debt-servicing costs of Tata Steel UK. Tata Steel Group continues to have adequate liquidity and has no material repayment obligations or refinancing requirements in the next 12 months.”

Corus’s annual revenue is about £12 billion and crude steel capacity is 20m tonnes.

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