Embattled internet service provider Tiscali has suspended its debt repayments as it tries to thrash out a new financing deal with its banks.
The company, based in the Sardinian capital of Cagliari, has run into financial trouble after admitting late last week that talks to sell its UK business to BSkyB had collapsed.
The company had been hoping to use the proceeds of the sale to help pay off part of its €500m (£461m) debt and trading in the company's shares had to be halted on Monday after they plunged 40% on the news that the board now felt it was "de facto impossible to proceed" with the sale because of the economic downturn.
Tiscali has about 1.7 million British customers, having grown through the acquisition of Pipex and broadband TV company Home Choice.
Late on Tuesday night Tiscali said that "pending the proposal for a standstill agreement from the main lending banks, the company has suspended payments on the long-term bank debts, including those due in March".
Its most recent payments, totalling €11m, were due today and on Friday this week.
"The company further clarifies that it has started a process aimed at the renegotiation of the financial debt with key lenders, who have shown to be supportive with this approach; in the meantime the company continues to operate as normal both in Italy and in the UK both with customers and suppliers."
Buying Tiscali would have instantly made Sky Britain's third-largest ISP behind BT and Virgin Media, but talks stalled last year as the satellite broadcaster balked at the price being asked.
Bankers originally quoted an asking price of about £600m for Tiscali UK, which has been losing customers. If the board of the company is willing to accept about half that figure, analysts reckon, bidders are likely to re-emerge.
