British banks falter over Eurotunnel debt deal

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The Independent Online
Eurotunnel shares were suspended yesterday as speculation mounted that the Channel tunnel operator will announce a deal on the rescheduling of its pounds 8bn debt mountain in the next week.

Talks in London over the weekend between the company and representatives of its its 220-strong banking syndicate almost produced an agreement. But an announcement was prevented by the reluctance of leading British banks to accept some of the detailed terms of the restructuring which will see a large chunk of the bank debt swapped for equity.

"We came within a whisker of an agreement within the last few days," said one source close to the talks. "There is still a gap but it is bridgeable. All the parties involved want a deal. It just requires one more heave."

The price at which the shares were suspended, 113.5p, is just 2p short of their high for the year.

Eurotunnel said it had requested the suspension pending an announcement from the president of the French commercial court who appointed two mandataries ad hoc to mediate between the company and its bankers earlier this year.

The mandate of the two mediators, the former Cabinet minister Lord Wakeham and Robert Badinter, expired at midnight and has not been renewed. An announcement from the court is expected in the next two days.

The court has the authority to begin proceedings to place Eurotunnel in protective administration if there is no agreement. But observers believe it is more likely to give the two sides a short period - perhaps 10 to 14 days - to reach a final agreement.

The weekend talks, held on what was described as "neutral territory" in London, involved Eurotunnel and the bank steering group. This comprises its four agent banks - NatWest, Midland, Credit Lyonnais and Banque National de Paris - the European Investment Bank and the European Coal and Steel Community.

On Friday, the Eurotunnel board will meet, as will its key 25-strong committee of instructing banks who represent the views of the rest of the banking syndicate.

Sources suggested last night that this could pave the way for an announcement at the beginning of next week.

"The chances of a deal being done finally are better than even," one said. Three weeks ago Sir Alastair Morton, who retires as co-chairman of Eurotunnel at the end of October, said the "architecture" of an agreement was in place. He said there were about eight hours of negotiations left, which was why he had given himself another eight weeks to complete them.

Since then talks are understood to have progressed quicker than expected. One observer said the two sides were "five eighths of the way down the track".

The two French agent banks are said to have been keen to reach an agreement before the mandate of the two mediators expired. But the British representatives are understood to have baulked at the terms.

Under the rescheduling deal, the banks will swap part of their debt for a 49 per cent stake in Eurotunnel and exchange a further portion for convertible bonds. What remains to be agreed is the precise amount of debt that will be exchanged and the price at which the bonds convert to shares.

Conversion of the bonds would give the banks control of the company but Eurotunnel is holding out for an option to redeem the bonds should it meet certain revenue targets, allowing it to prevent further dilution of its existing shareholders.

The Anglo-French consortium suspended interest payments on most of its pounds 8bn of debts a year ago. Since then it has racked up another pounds 370m of interest which has not yet been paid. The debt standstill runs until April of next year but all sides appear to accept that unless agreement on rescheduling can be reached by the end of this month, then the courts will have to step in.