Eurotunnel `may never repay debts'

Sir Alastair Morton, co-chairman of Eurotunnel, has told banks they must slash the interest rates and fees they charge on the tunnel's pounds 9bn of loans.

Announcing losses last year of pounds 925m, Sir Alastair said yesterday that Eurotunnel had warned the banks that the company may never be able to repay its debts during the entire 57 years left for its concession.

The company said it had told the banks and the two mediators appointed by the French courts that negotiations "should not be based on any assumptions that cash flows over the life of the concession will necessarily be sufficient to repay the banks their principal plus interest, at the levels currently in the credit agreements, plus interest and penalties payable thereon."

Sir Alastair made clear that the comment was aimed principally at persuading the banks to cut their profit margins.

Eurotunnel currently pays its banks a margin of more than 1.6 percentage points above the standard London interbank interest rates on its debts.

Sir Alastair said this margin was appropriate for a project in its construction phase but not for one that is complete and has 57 revenue-earning years ahead. He called this one of the main sticking points with the banks. "Nobody should plan to get project financing rates for the next 57 years" he added.

Eurotunnel, which yesterday replaced SBC Warburg with Kleinwort Benson as its UK broker, also pays substantial fees to its 225 banks. These included pounds 45m in the fourth quarter of last year as a result of the suspension of payment of interest on pounds 8.1bn of the pounds 9bn debts.

Sir Alastair insisted that there would still be equity left for shareholders once the debt restructuring with the banks was completed.

A shutdown or receivership did neither the banks nor Eurotunnel any good. Refusing to discuss the negotiations with the banks in any detail before the annual meeting in June, he said: "One thing we won't do is swap debt into equity and go away." However, he conceded that a debt-for-equity swap could form a part of a more complex package.

Sir Alastair repeated his claims that the Anglo-French nature of the company - two-thirds of whose shares are owned in France - gave special protection under French law to shareholders. He said: "Shareholders have to vote on any solution other than a shutdown and the process of moving towards that vote is overseen on an informal basis by the mandataires ad hoc."

These are two court appointees, Lord Wakeham, chairman of the Press Complaints Commission, and Robert Badinter, former French Minister of Justice.

To rub home the point against the banks that this is not an ordinary corporate rescue, Sir Alastair said: "An Anglo-Saxon shutdown and sell- off just does not do them any good in this case."

He believed that when an outline deal was reached with the 26 lead banks - which is unlikely before the autumn - "there is going to be something for the banks and something for the shareholders or there is not going to be a deal - and everybody wants a deal."

Although the shares slipped 4p to 69p yesterday, Sir Alastair insisted that the pounds 925m loss was no surprise, and was foreseeable from the numbers the company had given at the interim results in the autumn.

Last year, after bank fees of pounds 60m and depreciation of pounds 136m Eurotunnel lost pounds 200m before interest. The pounds 925m overall loss was reached after interest charges of pounds 768m, of which pounds 118m is a charge for bank interest unpaid since the standstill on 14 September.

Comment, page 19

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