Shares in beleaguered newsagent chain McColl’s crashed yet further this week after it confirmed it was in emergency talks with lenders to raise funds to avoid collapse.

Following weekend reports that McColl’s was working with advisers to find a buyer for the group or third parties willing to inject fresh cash into the business to stave off insolvency, the group issued a statement on Monday saying it had agreed to roll forward its financial covenant test periodically, and continued to receive credit support from its key commercial partner, Morrisons, to enable discussions with its banks.

“The group continues to believe that a financing solution will be found that involves its existing partners and stakeholders,” the group stated.

McColl’s also confirmed it recently received an approach to buy the whole business, which was subsequently withdrawn – believed to be from the Issa brothers’ EG Group, following a Sky News story naming the petrol forecourt giant as a suitor.

Although McColl’s said there were no further talks over selling the entirety of the business, it said it had also received indications of interests for parts of it. The Times reported that McColl’s wholesale partner Morrisons was also monitoring the situation with a view to possibly buying hundreds of stores out of administration.

The group, which employs about 16,000 staff and runs 1,100 newsagents across the UK, has been hit hard by supply chain disruption and lack of availability in recent months, issuing a number of profit warnings in 2021. McColl’s raised £30m in a placing in September to accelerate and enhance its Morrisons Daily rollout, with more than 200 of its stores now converted to the format.

In its trading update, it said there had been a “tangible improvement” of product availability since the start of its financial year on 29 November. However it saw a material footfall decline since the surge of Omicron, particularly over the Christmas period, impacting trading. While demand has since picked up, revenues in the first quarter are behind expectations. This meant adjusted EBITDA will be honest current market expectations as a result of difficult conditions in the first quarter, some of which are expected to continue through the rest of the first half.

McColl’s shares lost two-thirds of their value on Monday, collapsing to 2.35p, and were down to 1.53p by Wednesday. The shares have now lost 95% of their value over the past year.

Retail analyst Nick Bubb suggested McColl’s faces a significant challenge to remain solvent. ”Through a combination of poor management and bad luck (the industry supply chain crisis), the business is on its knees,” he said.

“The obvious solution is for Morrisons to take on their branded part of the estate, but they won’t want to take on any of the debt, so unless the banks can be persuaded to be unusually generous it is likely to be the administrator carving things up.”

However, broker Panmure Gordon suggested the shares might now be oversold. “It could be argued nothing has really changed in terms of the relationship between McColl’s and its banks (and with Morrisons),” it said, though it conceded McColl’s would need to reach an agreement with its lenders for a positive outcome.

The broker cut its target price from 24p to 12p given the uncertainty over these negotiations, but noted: “There is potentially significant upside here, but only for investors who are both brave and patient.”