WATERFORD Foods, the troubled foods group which issued a profits warning on Tuesday, is seeking to renegotiate with a bank syndicate, led by Chase Manhattan of the US, after informing lenders it had breached its loan terms.

In a letter to banks, the company also said it planned to dispose of its US cheese business and its British juice business.

The company has bean hit by profit cuts of £1.5 million sterling at the Premier milk business and £1 million sterling at the juice operation.

On Tuesday, the company told the Dublin stock exchange that "difficulties" had emerged in both its Irish milk business and British juice business. Now, in the letter to banks from Mr Michael Dempsey, group finance director, dated March 19th - a copy of which has been seen by the Financial Times - the company admitted that in 1996 "the interest and leverage covenants will be in breach and the headroom on the debt service and minimum net worth covenants much reduced".

Covenants are rules agreed by banks with borrowers to ensure a company can repay a debt.

One Dublin banker said a breach would technically allow the banks to call in the loans. However, it would depend on whether the company "had slipped up temporarily or was consistently in breach".

The year-end debt figure was £210 million sterling against market expectations of about £195 million as a result of extra working capital costs.

The company is seeking to renegotiate the terms of the covenant on both the gearing and interest cover.

The company declined to comment on the letter, saying discussions were a "confidential matter between the company and the banks". Chase was unavailable for comment.

Brokers had expressed dismay that the profits warning had been issued almost three months after the year-end.

It was unclear last night whether the banks had prior knowledge of the difficulties. But brokers said the timing of the announcement - forcing the company to postpone publication of the results until mid-April - suggested the losses may have emerged during the audit stage following the company's December year-end.

The company has made £300 million sterling of acquisitions since it came to the market in September 1988, when its shares were placed at 64p. The share price yesterday was 75p.