Tim Bowdler, the chief executive of Johnston Press, said yesterday that he could not guarantee that the publisher of The Scotsman and the Yorkshire Post could keep up with the conditions attached to its overdraft in the event of a sharp downturn in the economy.

The newspaper publisher's shares fell sharply again yesterday, tumbling 10 per cent to 123p, their lowest level in more than a decade, as the market worried that the company may not be able to meet the conditions attached to its banking covenants.

“I'm not making any forecast as to what will happen to market conditions,” Mr Bowdler said, because advertising was booked only a few days or weeks ahead. “There's plenty of speculation about what we are dealing with, speculation that we could see something more serious than an advertising downturn.”

The carefully hedged language reflected the reality that it is - as insiders admit - “mathematically possible” for the publisher to breach its covenants. City analysts estimate that advertising revenues would have to deteoriate by a further 10 per cent for that to become possible.

Johnston is banking on trimming its overall borrowings to avert a crisis. “This continues to be a very stable, cash-generative business,” Mr Bowdler said. Last year, the publisher cut its borrowings by £55 million in a year of no big acquisitions and the City is expecting a reduction by a slightly smaller amount in 2008.

The company reported downbeat results two weeks ago, in which it said that advertising revenues had fallen 4.2 per cent in January and February.

Yesterday, the City focused on the impact that a weakening top line would have on the group's borrowing facility. A string of takeovers left Johnston Press with £692 million of debt at the end of last year. The company has to keep borrowings no higher than four times its underlying earnings - expected to be £185 million to £190 million this year. If debt remained unchanged and underlying earnings fell by £15 million to £20 million, Johnston would be in breach. That, in turn, would mean that Johnston's interest bill would soar, as banks would demand higher payments to meet what is perceived to be a greater risk.

An estimated 20 per cent of the shares are in the hands of hedge funds, which are shorting the stock. One hedge fund trader said yesterday: “The market is going for leveraged companies and just attacking them; a lot of these stocks have been held by value investors, who are simply being forced out. Everybody is selling right now.”

Times Recommends

• Lenders face huge hit on mortgage fraud
• Mortgage rescue fund at the ready
• Zoom airline collapses and halts all flights