UPDATE 1-Cap&Reg battles to quash property LTV breach risk

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LONDON, May 16 (Reuters) - Troubled property fund manager Capital & Regional (CAL.L: Quote, Profile, Research, Stock Buzz) said it had more than halved its group debt and would offload assets to thwart foreclosure threat and improve the precarious financial position of its Mall Fund.

In an interim management statement issued on Friday, Capital & Regional said it had squeezed group debt to 114 million pounds from 270 million pounds, sending shares up 6 percent to 355 pence by 0725 GMT compared with a 0.6 percent rise in the FTSE 350 Real Estate Index .

But it warned a period of intense stress in Britain's property market was far from over and it was uncertain where values would settle after confidence bounced back.

Chief Executive Hugh Scott-Barrett said investment market conditions were likely to remain challenging for the remainder of 2008, as property investors adjusted to a scarcity of bank finance following the credit crunch.

Like many investors who exploited cheap and abundant debt in the last four years, Capital & Regional has moved close to breaching loan-to-value covenants in respect of some assets after property values began to slide last June.

The company said management attention was focused on increasing financial flexibility both at group and fund level, and that it would look to raise equity to eliminate risk of breach of covenant within its 2.9 billion pounds Mall shopping centre fund.

Currently, the Mall Fund has a gross loan-to-value of 59 percent, versus a covenant limit of 60 percent. Its sister fund, the Junction has a gross loan-to-value of 53 percent versus a covenant limit of 60 percent.

It confirmed it was in talks to sell some of the Mall's assets and it expected to update investors further on such initiatives before June.