Comment: Eurotunnel deal is still far from being done

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Most of the techniques being employed in Eurotunnel's refinancing package have in some shape or form been used before - those who follow the detail of these things will recognise them in EuroDisney, Heron, Isosceles and other famous corporate rescues of recent years. But never before have so many different tools been bolted together to produce such a complex whole. Here's a taste. There are equity notes, participating loan notes, resettable bonds. There are obligations remboursable en actions and, perhaps best of all, there are stablisation notes, which seem to be a licence for Eurotunnel to print its own money.

While all this may have been the fairest and only acceptable way of constructing the package, it could also pose a serious obstacle to selling the deal to Eurotunnel's mainly French shareholders, who must approve the rescue plan by a two-thirds majority. Shareholders are left with an initial 54.5 per cent of the company, reducing to 39.4 per cent after seven years unless the company performs tremendously well, and slipping further to 24.5 per cent three years later.

In between these widely different figures is an infinite number of possibilities, depending on the company's revenues, its share price and decisions that cannot be made for several years into the future. Analysts paint a not unduly pessimistic picture of the outcome. Initial impressions are that shareholders will certainly be diluted to around 40 per cent but would not sink to the lowest figure unless everything goes horribly wrong.

More questionable is whether French shareholders are going to spend time on the subtle calculations required to assess whether the worst case is the likeliest, or whether some intermediary result is more plausible. Fed a diet of wildly misleading promises for the past decade, they are going to assume the worst, and see this deal as leaving them with only a quarter of the company.

So they can be expected to continue to kick up a stink. At this stage the best that can be said is that the vote next year will not be a walkover for the company and its bankers. A defeat cannot be wholly ruled out. This is not a conventional share register dominated by institutions, but one in which 68 per cent is owned by private shareholders, mostly French.

On the other side of the fence are the bankers. It will be equally tough for the 25 lead banks to sell this plan to the other 200 banks in the lending syndicates. From their perspective, they have given away a great deal in below market interest rates and a holiday on up to pounds 1.85bn of interest in the first nine years.

If this were a purely British reconstruction, it is doubtful whether shareholders would have been left with more than 10 or 15 per cent of the equity. Even in the worst case, shareholders have done twice as well as that. Since a receivership would have taken place partly under French law, which is more favourable to shareholders, the balance of advantage in negotiations tipped away from the banks, as Sir Alastair Morton, the co-chairman, rightly predicted a year ago.

One small bank in the US nearly wrecked the $7bn rescue of Rupert Murdoch's News International, which required 100 per cent approval by the syndicates. Eurotunnel requires the same unanimity. There will be another nine months of high drama before this deal finally goes ahead.

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