Bankers to Southern Cross, the stricken care homes operator, have thrown the company a lifeline, extending current loan facilities until October to allow the sale of property assets to reduce debts.

Southern Cross stunned the market at the end of June by announcing that it was in breach of its banking covenants. The company's practice is to buy care homes and then sell the freehold but the collapse of the property market had made this more difficult and a £46 million loan from banks, led by Barclays, could not be repaid in time.

Southern Cross is the largest care homes operator in the UK. It has also been hit by local authority budget constraints and higher costs from a rising minimum wage.

In addition, the homes are less full than expected because of a higher-than-expected death rate. In June, as well as announcing a new finance director, the company said it had an occupancy rate of 90 per cent. This morning's statement said overall trading remained in line with this.

There will be a further update on current trading next month, expected on August 11. Southern Cross has refused to comment on reports that the board were in bid talks with private equity firms, insisting that these are "pure speculation".

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