FirstGroup, the transport business, has raised £236 million from a surprise share placing, which will be used to partly refinance its $3.5 billion (£1.8 billion) acquisition of Laidlaw, the transport company that runs America's Greyhound buses.

The proceeds from the oversubscribed fundraising will give FirstGroup more financial headroom to continue its expansion in the United States, the transport operator said.

The credit crunch has restricted the financing routes available to all companies and FirstGroup said it was appropriate to pay down some of its debt at this point, as debt is now more expensive. Moir Lockhead, the chief executive, said: “The truth is, we need flexibility in our balance sheet to continue growth plans.”

There are still 5,000 privately owned school bus operators in America and FirstGroup has said that it is constantly looking at acquisitions from among them.

Standard & Poor's, the rating agency, immediately raised its rating outlook on the bus and rail group from “negative” to “stable” after the successful share placing. The rating agency said that the improved credit rating reflected FirstGroup's commitment to improve its financial profile and the early signs of a turnaround in the Greyhound intercity business.

Since FirstGroup bought Laidlaw, it has striven to improve the jaded Greyhound brand by improving punctuality and getting customers to pay for extras, such as baggage and priority seats. It said yesterday that synergies from the acquisition, which was completed in October last year, would be $150 million a year, better than the original forecast of $70 million.

“The [Greyhound] buses were not punctual [when we bought the business] - only 60 per cent were on time. In April we got that to just under 90 per cent,” Mr Lockhead said.

Shares in FirstGroup closed down 6 per cent at 561p. The 43.8 million new shares were placed with institutions at 540p each.

First Group said that adjusted pre-tax profits for the year to March 31 were up by 27 per cent to £249 million. Revenue for the year was up 26 per cent at £4.7 billion, while the dividend was raised 10 per cent, a level that it pledged to maintain until 2010-11.

With record oil prices in excess of $120 a barrel, FirstGroup said that it had hedged fuel costs for all of this year and 10 per cent of 2009-10 at about $84 to $85 a barrel. It is budgeting on the basis of at least $100 a barrel.

Public transport companies are less concerned by rising fuel costs than airlines because fuel accounts for only 10 per cent of costs and rising prices are likely to drive travellers on to public transport.

Mr Lockhead said: “High fuel prices mean that the cost of travelling by car is much higher. As well as a drive by local authorities on climate change targets, more people are catching buses.”

Andrew Fitchie, an analyst for Collins Stewart, said that yesterday's results were in line with expectations, but added that the placing of 10 per cent of the company's share capital had come as a surprise.

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