British infrastructure firm Mouchel got a lifeline from its banks, buying its new management time to turn the lossmaking company around as government spending cuts hit demand for its services.

Mouchel said on Wednesday it had avoided a breach of banking terms by reaching a deal with its principal lenders for a new 129 million pound loan and credit facilities of up to 51 million.

The group, which helps build and maintain Britain's motorways, roads and schools for local authorities, said the deal would give it the headroom to restructure its balance sheet and reduce net debt of 114 million pounds.

After a year dominated by contract blunders , management resignations, failed takeover bids and tough trading, Mouchel warned it would significantly reduce 2012 targets.

Chief Executive Grant Rumbles s said the group aimed to come up with a restructuring plan

by the end of the company's financial year in July , adding that all options were open.

Panmure Brown analyst Andy Brown, who remains neutral on the stock, said: The investment positives are that Mouchel is still with us, it has a decent order book and new management sound determined to turn it around. The negatives are that turnaround could take time and financial pressures remain heavy on the group, he said.

Mouchel shares were down 27 percent at 12.97 pence at 1107 GMT.

The company, which rejected a 330 million takeover bid from VT Group in 2010 and now has a market value of around 14 million pounds, said on Wednesday its pretax loss for the year to July widened to 64.8 million pounds from 14.7 million in 2010.

Underlying full-year profit before tax and exceptional items dropped 84 percent to 5 million pounds, in line with analyst forecasts at Investec Securities.

Our results have been disappointing. The economic downturn and government steps to reduce public spending have continued to influence Mouchel's results this year, Rumbles said in a statement.

The outlook for Mouchel is challenging in the short term. Our revenue is likely to be under continuing pressure as a result of uncertainty last year arising from our financial position and takeover speculation, he added.

Mouchel said some customers had held back agreed work until the firm had sealed a new banking deal, while it had also been difficult to compete for new work.

There is no question that we are challenged in terms of (winning) large new contracts and will remain to be challenged until such time as we get our balance sheet more into shape, Rumbles told reporters.

The banks deal includes fees of up to 10.25 million pounds and will see its lenders entitled to subscribe for 5 percent equity at a nominal value.

TOUGH YEAR

As well as VT Group's 2010 offer, Mouchel has fended off takeover bids from Costain and Interserve this year, where talks lasted for around four months but broke down over valuation differences.

Last month its shares halved after warning that a statistical error and mounting risks to contracts would knock 60 percent off profit, resulting in Richard Cuthbert resigning as chief executive, and then later chairman Bo Lerenius.

Following the announcement it hired former Serco chief operating officer Rumbles as CEO but attracted more headlines when David Sudgen quit after just three days as interim chairman following Lerenius's resignation.

(Editing by Rhys Jones and Erica Billingham)