Allco Finance Group (Allco) has reached an agreement with its banking syndicate on a new senior debt facility that will see the asset manager reduce its debt to $400 million by June 2009.

"Despite the very difficult conditions being experienced in world financial markets, including higher debt margins reflecting the tougher credit climate, we are achieving key milestones in lower gearing levels," Allco chief executive David Clarke said yesterday.

The new agreement does not include the market capitalisation review clause seen in earlier agreements. This clause gives bankers the right to recall loans early if the share price falls past an agreed level. But analysts say this is not surprising.

"What market cap triggers do you want to put on it? The previous trigger was A$2 billion, while the market capitalisation [of Allco] is now a couple of hundred million. The damage is done," Morningstar analyst Peter Warnes said.

The agreement with the banks is generally seen as step forward, but there is still no clarity on the health of Allco's core business of leasing to the aircraft, shipping and rail industries, or whether the company will be able to attract new business.

Investors welcomed the new agreement yesterday with the company's share price 20 per cent higher to $0.45 in the first minutes of trading. Shares in Allco have taken a battering over the last twelve months; the price fell from $11 in July last year to a lowest point so far of $0.20 in March this year.

Meanwhile, Allco will continue to sell assets to further reduce its debt. Last month, the company announced the sale of its interest in a US wind energy project in Tehachapi.

At the time, Allco said it expected to reduce senior debt to $675 million by the end of July, but adjusted this figure yesterday to $691 million.