The prospectus for the rights issue, required to ensure that FirstGroup retains its investment grade credit status, confirmed that FirstGroup will face £30m of costs, charges and expenses, including estimated total underwriting commission of a £18.4m.

A FirstGroup spokesman said: "This is completely in line with the normal market rate for the kinds of fees charged on this kind of transaction."

Goldman Sachs International is responsible for underwriting 35% of the share issue, as is JPMorgan Cazenove. Merrill Lynch Inter-national is taking 20% and HSBC 10%.

These banks risk being left with FirstGroup shares if there is not sufficient demand from investors.

These costs, charges and expenses will be paid by the company from the proceeds of the rights issue, which should leave it with £585m, net of expenses.

FirstGroup, headed by former London Underground chief Tim O'Toole, is to offer new shares at 85p each on the basis of three new shares for every two investors currently hold. This is a 39.5% discount to the theoretical ex-rights price of its shares on Friday.

FirstGroup's shares closed down for the fourth consecutive day, shedding 11.4p, or 7.8%, to close at 134.6p. This means it has lost 39.9% since the beginning of the week, cutting £429.9m from its market value which now stands at £649.7m.

Espirito Santo analyst Gerald Khoo said: "In our view, the downside risks from the balance sheet have been reduced significantly as a result, albeit at the cost of significant dilution for shareholders

"Greater balance sheet capacity should allow extra capital expenditure that ought to accelerate the recovery in earnings.

"Although the remaining downside risks are now more modest, uncertainty remains and the current valuation is reason-able rather than compelling."

FirstGroup is to hold a shareholder meeting in London on June 10 to approve the rights issue. The new shares will start trading on June 26.

Some £215m from the rights issue will be used to pay down FirstGroup's debt which stands at £2.2 billion. Its debt, some of it taken on during FirstGroup's purchase of US transport group Laidlaw, has reduced by £182m in the last five years.

But a downgrade to "junk" status could have pushed up its interest bill and possibly seen it disqualified from bidding for more rail franchises.

The remaining £370m that FirstGroup raises will be retained and go towards a £1.6bn investment programme.

Much of the money will be directed towards its bus business, which operates around one-fifth of services in the UK. It has been hit in recent years by ill-timed fare rises and the slowdown in the economy, particularly in the north of England and Scotland, where it runs services in Glasgow, Aberdeen and Edinburgh.

FirstGroup is also the largest rail operator in the UK in revenue terms, with franchises including ScotRail.