Department store chain Debenhams has seen shares hit a record lowamid fresh City fears over the group's financial health in a tougher retail climate.

The company's shares slipped 10% to 39p at one stage - valuing it at £335 million - after an 18% fall on Friday amid analyst concerns that Debenhams could breach banking covenants and cut its dividend to save cash.

This is a just a fifth of the 195p price at which Debenhams was refloated on the stock market in May 2006, when private equity firms who took the group private in December 2003 secured big profits.

Seymour Pierce's Freddie George said: "There is no doubt in light of weaker trading in recent weeks that the company will come close to breaching its covenants... We also expect the company to cut its dividend at the year end to preserve cashflow."

Weekend reports had also suggested that Debenhams had extended payment terms to its suppliers to 96 days to ease the pressure on the business.

A spokesman refused to comment on the terms of its banking covenants but denied the renegotiation with its suppliers, saying: "Supply terms have not been pushed out."

Debenhams' recent private ownership was controversial because the consortium heavily increased the company's debt burden, making the group less attractive to institutional investors on its stock market return.

Its latest accounts for the six months to March showed net debt of £979.3 million, while consensus forecasts put pre-tax profits at around £110 million for the year to September - 17% below last year.

The company also paid out £42 million in dividends during the last financial year.

During its last update in April, the group said it had stolen market share from rivals but said like-for-like sales in the previous 32 weeks were down 1%, compared with a drop of 0.7% in the 26 weeks to March 1.

The company, which has 145 stores in the UK and Ireland, is steeling itself for the tougher trading conditions with cost-cutting measures such as reining in its capital spending programme, keeping lower stock levels and reducing markdowns.

Debenhams traces its history back to 1778 when William Clark established a drapers store in London's West End selling expensive fabrics, bonnets, gloves and parasols. In 1813, William Debenham invested in the firm, which then became Clark & Debenham.

The group was incorporated in 1905 and became a public company in 1928, before the consortium of CVC, TPG and Merrill Lynch bought the firm five years ago.