UPDATE 1-Seat financially solid, contrary to report -sources

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MILAN, June 23 (Reuters) - Italian yellow pages publisher Seat Pagine Gialle (PGIT.MI) is financially solid, sources close to the company said on Monday, contrary to a report that it may default on its bank loans.

Weekly business tabloid Borsa e Finanza reported on Saturday Seat risks defaulting on a 2.6 billion euro ($4.04 billion) loan that has a covenant tied to Seat's earnings before interest, tax, depreciation and amortisation (EBITDA).

Standard & Poors analysts wrote in a recent report they were concerned about the decline in Seat's profit and its impact on the covenant on the credit line.

Seat has repeatedly said it has enough cash to meet its debt obligations.

Seat shares fell as much as 11 percent to 0.0666 euros in Milan and were down 7.6 percent to 0.069 euros at 1011 GMT.

"The market over-emphasizes everything in this phase," said Alessandro Frigerio, a fund manager at RMJ in Milan. "I don't think a default is likely, though it is possible there will be a management change."

Following a series of leveraged buyouts, Seat has debt of 3.2 billion euros. Its market capitalisation has declined to 615 million euros after the stock declined 72 percent this year.

Chief Executive Luca Majocchi is focusing on expanding Seat's Internet business in Italy and is ready to cede Seat's businesses in Britain, France and Germany if he finds a buyer.

"Majocchi is doing what he can with the business, but he inherited the debt," Frigerio said. "A possible replacement for him could be (former Telecom Italia Chief Executive Riccardo) Ruggiero." (Reporting by Mathias Wildt and Sabina Suzzi; Editing by Quentin Bryar)