Mecom, the pan-European newspaper group run by David Montgomery, has avoided breaching its financial covenants after agreeing a second extension to terms with its banks until the end of March.

The company, which announced in December that it had deferred a covenant test scheduled for 31 December to the end of February in a deal with its lending banks, today announced a further extension to 31 March.

"The company is continuing constructive discussions with its lending banks with a view to concluding certain amendments to its debt facilities so as to provide financial stability in the medium term," said Mecom in a statement.

"In the context of those continuing discussions, it has been agreed that the covenant test date will be deferred for a further period to 31 March 2009."

While the discussions with its banks continue Mecom has agreed to a cap on the level of funds available under its revolving credit facility "at a level sufficient to cover the company's operational working capital needs".

Mecom said there would not be a fee for the second extension. The first extension incurred a fee of €2.5m (£2.2m).

Earlier this month Mecom raised more than £50m selling its newspapers in north-west Norway. In January Mecom sold its German publishing operation, which includes titles such as Berliner Zeitung, Berliner Kurier and Hamburger Morgenpost along with 10 websites, for €152m (£135m) to rival M DuMont Schauberg of Cologne.

Montgomery, Mecom's chief executive, survived a coup last month, when six directors including the finance director, John Allwood, and the former Emap chief executive, Sir Robin Miller, tried to oust him after disagreements over strategy. But they resigned en masse when the company's shareholders backed Montgomery.

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