Banks face EIB cash call

Eurotunnel: Financial crisis takes a new turn as lender demands payment of loan guarantees

Bank lenders to Eurotunnel are being forced to bail out the European Investment Bank, which was one of the major backers of the project.

It emerged in letters to banks sent over the weekend that a substantial part of the EIB's loans of pounds 300m was guaranteed by other bank lenders in the syndicates.

The guarantees are being called in this week, and as a result other lenders will have to take over the burden.

The demand, triggered by Eurotunnel's unilateral suspension of interest 10 days ago, has caused alarm among Japanese banks involved in the Eurotunnel syndicates, since they are weighed down by domestic bad debts and could have problems in raising the funds.

The bad blood caused could make it hard to reach agreement on financial restructuring and could lead to calls from Japanese banks for government intervention.

At the end of last week, Eurotunnel was given formal notice that the EIB would be making an initial demand for the guarantees to be honoured and the money to be repaid.

It is understood that only two classes of lender in the syndicate of 225 are affected, and that the EIB will be remain a lender to Eurotunnel, but on a smaller scale.

The call from the EIB comes as Eurotunnel's main bankers expressed the view that they believed shareholders in the project should suffer some dilution.

In a letter to Eurotunnel's 225 bankers the four agent banks, NatWest, Credit Lyonnais, Midland and Banque National de Paris explained why they had been unable to come to an agreement with Eurotunnel on a financial restructuring.

In the most forceful terms they have used since the project began, they describe Eurotunnel's proposals that were put to them earlier this month as "unbalanced and unacceptable".

They described how the refinancing package presented to them involved very considerable pain for the banks by way of forgiveness of interest, which would not be recovered, yet at this stage no "defined pain" for other stakeholders.

The letter says: "We continue to be of the opinion that any pain must be shared by all stakeholders. We question whether it is reasonable to expect the Banks to assess the amount of pain that they should take without a clear idea of what contributions [if any] might be expected from other interested parties. Moreover, banks would have been asked to decide on the basis of Eurotunnel's recent short term revenue forecasts which are markedly adverse compared to previous company forecasts."

The letter to Eurotunnel's bankers says that the company presented to the leading bank a three-year plan for the years 1996-1998 which showed much lower revenue forecasts in these years than previously assumed by the company.

The letter refers to a forecast of a funding shortfall in the region of pounds 7.5bn which might have been exacerbated by the compounding of interest over many years.

The banks say that the biggest change to the funding situation comes as a result of lower revenue forecasts, especially over the next three years, which on its own increase the shortfall by more than pounds 6.2bn. They also note that the depreciation of the pound against the French franc resulted in an increase in the funding shortfall of around pounds 0.4bn, although this has been offset to some extent by new economic forecasts and revised operating and capital spending forecasts.

The agent banks state that early this month Eurotunnel proposed a combination of measures, including a fixed-rate interest coupon at below cost of funds on the whole of the junior debt, for a period of five to six years, and interest deferral. They said the aim was to enable the company to raise money on the capital markets or the equity markets in order to pay back the banks early in the next decade.

The agent banks say that they rejected this proposal because it did not seem to them to involve pain for other stakeholders such as the company's shareholders.

The letter to the bankers illustrates how sensitive the project's economics are to small changes in revenue.

For example, the banks say that if they were to use Shuttle revenue figures of 10 per cent higher than those forecast by the independent forecasters, the funding shortfall would be reduced to pounds 3.7bn with a final repayment in 2026, with the date of maximum indebtedness being in 2008.

If those same revenue figures were 10 per cent lower than the forecast, this would increase the funding shortfall and would make it impossible to repay total debt and accrued interest until 2052.

The agent banks say that previously they had proposed to Eurotunnel that there should be an interim solution that would consist of an interest capitalisation arrangement for a period of up to two years.

This proposal, they say, would have been part of a package in which the banks would be asked to dispense with default interest but might receive equity later on as part of the unpaid interest.

The agent banks add that their proposed interim solution would not have prevented the company and its bankers from finding a longer-term solution to its problems but would have had the advantage of providing a more defined and managed short-term situation than that is provided by the existing standstill arrangements.

The letter says that the standstill eventually does provide a period of stability for the company which remains of crucial importance.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
News
i100
News
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Arts and Entertainment
Sink the Pink's 2013 New Year's Eve party
musicFour of Britain's top DJs give their verdict on how to party into 2015
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Arts and Entertainment
(L-R) Amanda Peet as Tina Morris, Melanie Lynskey as Michelle Pierson, Abby Ryder Fortson as Sophie Pierson, Mark Duplass as Brett Pierson and Steve Zissis as Alex Pappas in Togetherness
TV First US networks like HBO shook up drama - now it's comedy's turn
Travel
Pool with a view: the mMarina Bay Sands in Singapore
travel From Haiti and Alaska to Namibia and Iceland
News
The will of Helen Beatrix Heelis, better known as Beatrix Potter, was among those to be archived
people
Arts and Entertainment
The Plaza Theatre in Atlanta, Georgia was one of the 300 US cinemas screening
filmTim Walker settles down to watch the controversial gross-out satire
News
Nigel Farage: 'I don't know anybody in politics as poor as we are'
i100
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect