Banks approve Eurotunnel's plan to restructure pounds 8.7bn debt mounta in

The Channel Tunnel operator Eurotunnel moved a step closer to financial survival yesterday after its banking syndicate unanimously approved the plan to restructure its pounds 8.7bn debt mountain.

The 174-strong banking syndicate is expected to sign the formal refinancing agreement in January, paving the way for Eurotunnel to swap pounds 2bn of its debt for equity in the spring. The restructuring will give the banks a stake of up to 61 per cent in the tunnel though existing shareholders could theoretically retain majority control through the exercise of two sets of warrants.

Eurotunnel obtained shareholder approval for the debt-equity swap in July. Yesterday's approval from the banks only leaves Eurotunnel waiting on the British and French governments to agree the terms on which they will extend its concession by a further 34 years to 2086.

Patrick Ponsolle, executive chairman of Eurotunnel, said: "If shareholders are to gain the full benefit of the restructuring, the British and French governments should now make a final decision on the conditions under which the concession will be extended."

The two governments want a share of profits over the period of the extension and an undertaking from Eurotunnel to increase freight traffic through the tunnel. But they are still divided on key elements of the deal.

The French have suggested that Eurotunnel give up 25 per cent of its extra profits. The British Government wants a bigger share of the pot than this and it also wants a concession from the French giving UK freight operators greater access to the French rail network.

Senior Eurotunnel executives said they were "guardedly optimistic" that agreement with the two governments would be reached around Christmas. "I do not see any insuperable obstacles," said one.

Under the financial restructuring Eurotunnel will exchange pounds 2bn of its debt for equity and equity notes at an issue price of around pounds 1.25. A further pounds 2.7bn of debt will be swapped for other forms of paper, reducing the stake of existing shareholders to 39.4 per cent.

At the same time Eurotunnel will issue new warrants to shareholders enabling them to take their holding back up to between 51 and 55 per cent. However, in order for the warrants to be exercised, Eurotunnel's share price has to more than double from last night's closing price of 62p.

The likelihood of approval from the lending syndicate strengthened markedly earlier this year after 20 per cent of the debt changed hands as a group of US banks moved in and a large number of Japanese banks bailed out. US banks now own a quarter of Eurotunnel's debts. The next biggest lenders are the French with 17 per cent of the debt.

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