Eurotunnel is in a hole - and it's still digging

"If the summer trade is dreadful, Sir Alastair may be negotiating with banks for a debt moratorium, like an undersea Mexico."
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Sir Alastair Morton yesterday put on an excellent impression of a case of split personality, where several people seem to live in a single body.

He began the day by giving the bleak impression that Eurotunnel was about to collapse into the arms of its bankers, a prediction that not surprisingly knocked the share price for six.

Effortlessly switching mood, by mid-morning he was back to his better- known habit of berating critics who talk the project down, wondering what all the fuss was about and denying any intention of calling on shareholders for new money. And by lunchtime he and Graham Corbett, his finance director, were managing to look on the bright side, wondering whether Eurotunnel could make a start on refinancing its £8bn debt mountain on better terms this autumn.

Perhaps, Mr Corbett suggested, the company could be issuing convertible bonds at some stage next year, to get Eurotunnel out of the grip of the 9 per cent interest rates currently charged by its bankers.

Eurotunnel has had a reputation for giving shareholders an alarming ride, but several versions of the story on the same day must be beginning to push their patience a bit. When personalities split, it tends to be a result of strain, and there is certainly enough of that around at Eurotunnel.

The company's bankers have just released another £300m loan to take it through to October, but they are keeping up the pressure, because - like Sir Alastair - they realise that the summer of 1995 is make-or-break time. As critical, if not more so, as traffic figures is the reliability of rolling stock and services, which must continue to improve, or future revenue forecasts will be as worthless as past ones.

The most recent signs are good - last weekend broke new records - but this will be a long, tense summer for the company as it tries to maintain the improvements.

If the summer trade is dreadful and the breakdowns reappear, Sir Alastair may be greeting administrators at the office door or negotiating with banks for a debt moratorium, like an undersea Mexico.

If the company gets by over the summer, it will still be faced with a new wrangle with its banks over the release of the next chunk of loans, which will be needed by the autumn to pay the interest bill to those very same banks.

The banks have every incentive to pay up, since the alternative would be heavy bad debt provisions.

Even so, Sir Alastair was yesterday laying the groundwork for the battle to come, with a declaration of support for shareholders against the banks, in case lenders demand new concessions from shareholders or a debt-for- equity swap.

Only if everything runs like clockwork and the cash flow forecasts are beaten will there be a real prospect of that golden scenario of either refinancing debt in the bond market or negotiating the margins downwards.

Whom do we believe? Perhaps the only place to look for a reliable opinion is the auditors' note to the accounts. At current interest rates and projected revenues, they say, the money already on the table will last until the second half of 1996. Since Eurotunnel does not expect to break even on its cash flow until 1998, there is a gapand there must, therefore, be another refinancing.

Heaven may send Sir Alastair salvation in the form of a settlement of his dispute with the railways using the tunnel, which would boost revenues sharply.

But the likeliestoutcome is that by next winter or springEurotunnel will be back cap in hand to both shareholders and bankers for more.