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Tesco lines up £2.5bn credit facility from banks

Tesco has signed a deal with a handful of banks for a £2.5bn credit facility in an attempt to safeguard the business.

The retailer has tapped the banks to provide an “insurance policy” to fund itself as it tries to resolve a £250m black hole in its profits.

According to Sky News, the revolving credit facility involves between four and six banks and would temporarily replace an existing arrangement of a similar size as chief executive Dave Lewis tries to get on top of the issue.

Revolving credit facilities allow for money to be withdrawn, repaid and withdrawn again any number of times until the arrangement expires. They are typically used to provide liquidity for a company’s day-to-day operations.

Although more expensive for Tesco than the original facility, the new bank deal is understood to offer the company additional flexibility because it is not contingent upon downgrades to its credit rating or breaches of other borrowing covenants.

News of the profits overstatement for the six months to August 23 sent Tesco’s shares plunging and wiped almost £2bn from its stock market value.

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