Banks face pounds 750m Eurotunnel bill

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The Independent Online
The financial crisis surrounding Eurotunnel deepened last night when it emerged that the banks may be forced to repay the whole of a pounds 750m package of loans made by the European Investment Bank.

Sources said a syndicate of about 60 to 70 banks had guaranteed the EIB loans, which have been paid in stages since 1987. Repayment was triggered when Eurotunnel defaulted on interest payments earlier this month.

The pounds 750m figure is more than twice the size originally thought, and will put further pressure on Eurotunnel's 225 banks to complete the current financial restructuring. Eurotunnel itself - led by co-chairman Sir Alastair Morton - is unaffected by the EIB's move for repayment, as it was guaranteed the loans by the banks.

Under the EIB arrangements, the banks agreed to guarantee the money until the tunnel reached a level of financial stability. After this, the full risk of investment would transfer back to the EIB, removing liability from the banks.

It is unclear when the EIB will seek repayment, though it is likely to be months rather than weeks. The situation is complicated by the current restructuring talks, of which the EIB, thought to be Eurotunnel's largest lender, is a crucial part.

Nevertheless, the need to repay the money has alarmed many banks, especially the Japanese lenders, which account for some 25 per cent of Eurotunnel's pounds 8bn debts.

The EIB has a further pounds 300m loaned to Eurotunnel, though the bulk of this is senior debt and so unaffected, because the interest payment suspension affects only junior debt.

Eurotunnel yesterday would say only that the EIB "remained committed to a long term role" in the project. The EIB itself said the organisation had agreed to loan up to pounds 1bn, the money being paid over a number of years. An EIB spokesman confirmed that repayment was triggered by the default on interest payments, but would not be drawn on the timescale.

As the banks ponder the unexpected early repayment of the loans, they have been paving the way for Eurotunnel shareholders to shoulder more of the pain. A letter to Eurotunnel bankers from the agent banks describes Eurotunnel refinancing proposals put to them earlier this month as "unbalanced and unacceptable." While the banks are bearing the pain, there is no "defined pain" for other stakeholders.

The letter says: "We continue to be of the opinion that any pain must be share 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."

The letter adds that the company presented to the lead bank a three-year plan for the 1996-1998 which showed much lower revenue forecasts in these years than previously assumed by the company.