Trinity Mirror was yesterday forced to tell the City it had no liquidity problems or borrowing problems to fight a collapse in its shares after they lost a quarter of their value in morning trade.

The emergency statement had the desired effect and shares in the company behind the Daily Mirror and the Sunday Mirror soared with relief, ending a day of extraordinary volatility up by 13 per cent at 62p.

At the low point, at about 9.30am, shares in the newspaper group were 41p. That valued the whole company at £107 million, or 1.4 times this year's expected after-tax profits.

The low valuation triggered speculation that an investor could step in to bid for the company, or seize a strategic stake. However, Richard Desmond, owner of the Daily Express, said that the company was not a bargain. “When it's in receivership, we'll look at it,” Mr Desmond said.

Several rival newspaper owners indicated in private yesterday that they still believed the company was expensive. Adding in its debts and an estimate of long-term pension liabilities, which a buyer would have to take on, produces an overall enterprise value of about £800 million.

Amid an atmosphere of crisis at Trinity Mirror's Canary Wharf headquarters, the company told investors at 2pm that it was “trading comfortably within the covenants for its debt facilities” and that “there are no liquidity issues with any of our pension schemes”.

The initial plunge came after confusion about the terms on which Trinity Mirror had struck a new £210 million loan agreement - after Jonathan Barratt, an analyst with Kaupthing Securities, said that the new overdraft had been agreed on more restrictive terms, under which the banks could call in the loan if debts rose above 3.25 times underlying earnings.

Trinity Mirror responded aggressively and said that Mr Barratt was incorrect. Soon after Sly Bailey, Trinity Mirror's chief executive, and other executives had arrived at their desks, the company was indicating that the borrowing conditions had not altered.

The group reiterated in its 2pm statement that “there has been no tightening of the financial covenants” in the £210 million loan relative to the £269 million one it replaced - the first time it has spelt out the conditions attached to the new overdraft.

Mr Barratt said he had previously been told, in error, by Trinity Mirror's investor relations department that the terms of the company's new loan had tightened to 3.25 times underlying, earnings from 3.5 times. As a result he had disseminated information to investors based on that “in good faith”.

Trinity Mirror denied that it had given him incorrect information.

Trinity Mirror has not yet used any of the £210 million loan facility, but has separate borrowings of £425million. The company disclosed yesterday that these were agreed on less restrictive terms, under which total debt had to remain below four times underlying earnings.

Analysts expect Trinity to make £190 million this year, and £180 million in 2009 before interest, tax, depreciation and amortisation. If its debt stayed at its present level, the earnings would have to tumble to £106 million before the company was in breach.

There have also been persistent worries about the health of the company's £1.5billion pension fund. The fund is £125 million in deficit according to the last valuation, but there are concerns that this could increase when the next valuation is done towards the end of the year. Yesterday, though, Trinity Mirror said that “it does not expect any increase in pension contributions during 2008”.

Trinity Mirror was also supported by dismal results from Gannett, the American group behind The Herald in Glasgow. Gannett said, in statements out at 1.30pm UK time, that classified advertising in its portfolio of 300 British local newspapers had collapsed 19.3 per cent in June. Its property advertising slid 36.8 per cent. Gannett's figures were worse than those previously reported by Trinity in a profit warning late last month. Trinity had said its regional newspapers' advertising was down by 13.5 per cent in May and June. Gannett had already reported a 14 per cent fall in classified advertising in May.

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13.5% Fall in Trinity’s regional advertising in May and June

19.3% Fall in classified advertising at Gannett’s 300 local papers in June

36.8% Fall in Gannett’s property advertising in June

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