Eurotunnel to win reprieve from banks

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The Independent Online
BY PETER RODGERS

Business Editor

Eurotunnel looks set to avoid a new financial crisis by winning a waiver from its bankers allowing it to draw on £700m of loans.

After failing to meet revenue forecasts for the £10.5bn project, the company is in breach of its loan covenants, and has had to ask its 220- strong lending syndicate for permission to draw on the loan facility beyond the end of this month.

The company said last month that it had agreed the conditions of a waiver with its four lead banks, NatWest, BNP, Crdit Lyonnais and Midland. They have put the proposal to the rest of the banking syndicate.

Positive replies are believed to be already above the minimum of 75 per cent required for the waiver to come into effect, although it is still possible that a few banks may refuse.

The company is expected to confirm on Monday when it announces its preliminary results that it expects to be able to continue using the bank loan, which was part of a refinancing package agreed last summer that included an £858m rights issue. In February, the company indicated that the whole of the loan facility was still unused.

After a late start to services in the autumn, revenue last year was just over £30m, compared with a prospectus forecast of £135m and a revised target of £35m announced in October. The delay has a knock-on effect on the revenue forecast of £513m this year, which the company has already admitted will be missed. Brokers believe revenue could be £100m less than forecast.

Eurotunnel has insisted that its finances are now on a sound footing but some analysts maintain the banks are likely to demand a new cash injection from shareholders by the autumn.

Leading banks have made clear there is no point in worrying about further refinancing yet because only the results of the spring and summer tourist season can demonstrate whether revenues are enough to sustain the company's debt.

Eurotunnel plans to renegotiate downwards the terms of its bank loans, totalling more than £7bn, as soon as its banks will allow. In three years, interest charges are likely to account for 70 per cent of outgoings.

Another potential problem is that £150m of cash from warrants due to be exercised by October is at risk because the share price is languishing below the exercise price.

At last night's closing share price of 243p, down 2p, the warrants were "worthless paper", said Mike Stoddart of Charterhouse Tilney. He said at current exchange rates the exercise price was 69p higher at 312p. Eurotunnel's banks have given the company the benefit of the doubt on the grounds that the last date for exercise is more than six months away.Another £50m from warrants due by June should be available to Eurotunnel since their exercise price is below £2.

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