BoE offers to broker Eurotunnel settlement
Tuesday 07 May 1996
The Bank's offer to step in came as fears grew that a requirement for a unanimous vote by the syndicates could prove one of the biggest obstacles to signing and sealing an agreement to rescue Eurotunnel.
Even on the assumption that the lead banks reach a settlement with the company in negotiations that have started this week over pounds 8.1bn of debt, a single maverick bank among the rest of the 225 could wreck the plan by voting against it.
Rupert Murdoch's News Corporation was nearly brought to its knees when a single bank held out against a financial rescue a few years ago.
The move reverses the Bank of England's present policy of leaving the Eurotunnel crisis to be sorted out by the company and its bankers, with the help of the French central bank and Treasury. Since Eurotunnel appointed mediators under French law the focus of negotiations has shifted to Paris, leaving the Bank in a back seat.
The Bank is not thought to have offered to step into the top level negotiations under way between Eurotunnel and a group of six lenders, which are overseen by 20 other senior banks. Its intervention is aimed at helping these lead banks sell any deal to the rest.
There are, however, reports of continuing disagreements among the lead banks, which are believed to have put forward a swap of up to pounds 3.5bn of debt for 49 per cent of the equity as an option in the talks. Another proposal is a revenue bond securing part of the tunnel's cash for the banks.
Under the plan now circulating, the Bank would follow the pattern of its previous involvement in Eurotunnel, which has usually been to bring home the banks' votes once a top level deal has been reached.
The Bank played a crucial role in persuading lenders to agree the pounds 1.6bn rights issue and debt refinancing announced two years ago.
The Bank also brokered a settlement between Eurotunnel and TransManche Link, the consortium of contractors, which was in dispute with the company over cost overruns.
One insider described the Bank's proposed role as "helping to show a minority of banks that preservation of value for the banks as a whole is worth more than individual self-interest".
On past precedents, the lead banks will almost certainly have to amend the terms as negotiations with the rest of the syndicates progress.
One risk is that the syndicates will be blackmailed by individual banks or groups of banks holding out for special favours. Another more technical problem is that some banks may have been taken over or have sold their loans to others.
Meanwhile, attempts by some banks to press the Eurotunnel co-chairman, Sir Alastair Morton, to quit ahead of the negotiations appear to have faded. He and Patrick Ponsolle, the French co-chairman, are seen by some banks as pushing too stridently for the rights of shareholders, who must also approve a rescue.
A group of shareholders said yesterday they were considering legal action against the banks under French bankruptcy law, claiming the banks were acting as "shadow directors" and effectively running the firm. Other potential claims were for excessive lending and misrepresentation, they said.
Albert Gauffret, chairman of Adacte, a French shareholders' association said he was "extremely unhappy" about the proposed 49 per cent debt for equity swap and he said the banks should write off two thirds of their debt, to reflect its price in the secondary market.
Christian Cambier, chairman of another group, Eurotunnel Shareholders' Association, proposed the banks should take up to 50 per cent of the capital at a share price of 30 francs, comparable with what shareholders had paid in the first place. If it were as low as 5 francs - around the current share price - he would prefer bankruptcy to the banks' debt for equity swap.
Meanwhile, Eurotunnel said Le Shuttle carried 154,522 tourist vehicles in April and 5,372 coaches, a 60 per cent increase on a year earlier. Freight increased 88 per cent, with 42,689 trucks carried. But British and French railway traffic through the tunnel was unchanged from March. Eurotunnel shares fell FF0.05 to FF5.65 in Paris.
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