Hopes fade of tunnel deal this week

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The Independent Online
Hopes that Eurotunnel will be able to report a deal over its pounds 8bn debts at its annual meeting in Paris on Thursday have faded.

But negotiations with the company's top banks have never the less made progress in the last few days, leading to expectations that the two sides will be able to present outline plans to the rest of the banking syndicates next month.

Sir Alastair Morton and Patrick Ponsolle, the co-chairmen, will be under strong pressure from hundreds and possibly thousands of angry French shareholders packed into the Palais des Congres to give a progress report on the talks.

They may be unable to stay silent on progress, but at this stage the company is hoping not to have to give hostages to fortune by giving any detailed assurances.

It is thought that Eurotunnel and its creditors are in reach of an agreement that will hand more than 40 but less than 50 per cent of the equity in the company to its lenders, considerably more than the one-third stake that the company first pitched for.

In return for a lower immediate stake in the shares, the banks may be able to switch some of their debt into tradeable bonds and into convertible loans. The latter will be converted into equity if Eurotunnel fails to meet new financial targets.

The Eurotunnel share price has risen strongly over the last few weeks from 62p to 105p, valuing the company at just under pounds 1bn, as shareholders banked on a favourable deal.

Among the items needing to be cleared up before a deal can be struck is agreement on lengthening the 57 year franchise, a move suggested to the British government by Jacques Chirac, the French President. Although the UK was initially cool to the idea, it seems likely to back it as a cost-free way to the governments of giving the banks more certainty they will eventually be repaid.

Eurotunnel is also likely to win its demand for a lower interest rate on the debts, which will be rescheduled to delay capital repayments until the company is in a stronger financial position.

Sir Alastair and Mr Ponsolle have been arguing strongly for a reduction in the cost of the loans which were fixed at the rates needed to finance a speculative construction project. Now the tunnel is completed and working, they argue, a lower interest rate is appropriate.

There was a clear indication last week that the negotiations will continue into next month, when Jean-Pierre Mattei, president of the Paris commercial court, said he would decide soon on a possible extension of the mandate of the two mediators appointed by the court, Lord Wakeham and Robert Badinter. Their original appointment runs out at the end of June, and he said it would be continued if there were reasonable chances of a solution.

He also made clear that if talks failed and Eurotunnel went bust it would create a "legal monster", particularly if the banks try to enforce their contractual right to take over the tunnel operations from Eurotunnel, known as substitution. Mr Mattei said the mediators had tried to impress on the banks "that there have to be other solutions than invoking the substitution clause".

An outline agreement with the four agent banks, NatWest, Midland, Credit Lyonnnais and Banque Nationale de Paris, will probably take until the end of the year to finalise. The agents may not announce proposals until they have the backing of the rest of the 25 lead banks.