BUSINESS leaders are hoping Connaught will emerge from the "last chance saloon" as the firm continues to negotiate with lenders over its urgent need for more cash.

The Exeter-based social housing maintenance company is also understood to be facing a probe by the City watchdog after warning on Monday that it would breach its banking covenants.

The firm has already embarked on a cost reduction programme expected to yield savings of at least £25 million in the 2012 financial year.

It has not said whether there will be more cuts in light of its current financial predicament.

Tim Jones, chairman of Devon and Cornwall Business Council, said Connaught was fighting for its survival.

"This is the last chance saloon and it's extremely nerve wracking as they go through this process," he said. "They have been honest with investors and with lenders and held their hands up, and we think this is a great local company with a long term future that should be given every chance.

"We all wish them well and hope that they can trade through this either in their current form or in some slimmed down form. If they can survive past the Government's comprehensive spending review in the autumn then there will be a reasonable prospect of that.

"It's a very well run company and they have been absolutely caught by the recession through no fault of their own."

The Financial Times reported yesterday that Connaught faces an investigation by the Financial Services Authority (FSA), which is said to be looking at several lines of inquiry including whether Connaught revealed price-sensitive information quickly enough. Connaught and the FSA declined to comment.

The crisis-hit company has seen shares tumble more than 90 per cent since warning of a £200 million blow to revenues from Government spending delays a month ago.

As the Echo reported yesterday, the firm said it would breach banking covenants after warning its debts will be well over the previously advised level of £120 million by the end of August. The support services firm, which has around 180 multi-million pound social housing contracts all over the country, is in talks with its lenders after a review had iden tified an "urgent requirement" for additional funds to meet current and ongoing business, in part due to pressure from suppliers and sub-contractors.

Company chairman Sir Roy Gardner said Connaught was enduring "challenging times" but described discussions with lenders as "constructive".

The company said last month: "We have a record bid pipeline of £5.3 billion reflecting the trend towards larger, longer-term contracts as our customers seek to address their budgetary restrictions."

Connaught recently identified 31 projects where spending will be delayed as a result of the clampdown, wiping £80million off revenues and £13million from underlying profits in the current financial year.

If the squeeze continues into 2011, sales and profits will fall by a further £120 million and £16million respectively.