Chunnel banks irate

A DISPUTE has broken out in the wake of Eurotunnel's refinancing, with some bankers furious about the apparently favourable treatment of two of the company's closest advisers who came to the rescue with a last-minute pounds 50m top-up loan.

The terms of this loan - offered by Morgan Grenfell, the company's financial adviser, and the banking arm of SG Warburg, the company's broker - are far better than those offered to the 220-strong banking syndicate for the pounds 693m it has contributed to the pounds 1.6bn refinancing.

The row is part of the internecine bickering among the advisers and bankers who put together one of the most complicated and problematic refinancings in recent City history.

Disclosure of the loan emerged only in last week's prospectus for the pounds 858m rights issue. The Eurotunnel banks that put up new money did so in the expectation that they would be the most senior lenders, both in security and in the terms they received.

Sources close to the refinancing say that without this pounds 50m, Eurotunnel would never have raised sufficient debt to proceed with the pounds 858m rights issue. It had been made clear during the refinancing negotiations that the rights issue would not go ahead unless at least pounds 700m of debt was raised.

One banker said: 'This is the sort of thing that is remembered for a long time.' Another added that he might well vote against it.

If the loan goes ahead, Morgan Grenfell and Warburg will receive pounds 2.5m in fees between them and pounds 500,000 if it does not. They will also receive the cost of their money, plus 4 per cent on any money lent.

Graham Corbett, Eurotunnel's finance director, said that the offer required the approval of at least 65 per cent of the 24 lead banks, but might also need the approval of a wider group.

He added that the facility had been mooted for some time as a fallback. 'This facility was there in the wings, but we never intended using it,' he said.

Adding to the controversy over the refinancing, Mr Corbett said that Eurotunnel suspected that some financial institutions involved in the underwriting of the rights issue had sold shares in the days before it was priced. The share price fell 18 per cent in 10 days.

'There were clear indications that somebody was 'shorting' (selling in order to hedge against its underwriting exposure) our stock,' Mr Corbett commented.

The COB, France's financial regulator, is investigating recent share price movements after concern was raised by a French Eurotunnel shareholders' association. 'Let's wait to see whether the inquiry comes up with anything,' Mr Corbett said.

Banks and investment institutions shunned the refinancing. About 150 of the 220 banks refused to put up new money.

And SG Warburg Securities, the broker, managed to find sub-underwriters for less than half of the pounds 392m-worth of shares allocated to the UK.

Warburg declined to make any comment.

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