Mission Impossible: Sir Alastair gets the banks in tow (with apologies to Tom Cruise)

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The Independent Online
The board of Eurotunnel last night approved a deal to refinance its pounds 8bn debt mountain that sharply dilutes existing shareholders but leaves them in control for the time being and saves the Channel tunnel operator from receivership.

Eurotunnel said yesterday that it had reached agreement with its banks ``on the basic principles of the restructuring plan".

Under the refinancing agreement, the banks will swap a portion of their debt - likely to be between pounds 2.5bn and pounds 3bn - for a 49 per cent stake in Eurotunnel. There will also be an issue of convertible bonds which would enable the banks to take a majority shareholding of 75-80 per cent although Eurotunnel is thought to have held out for the right to redeem the bonds provided financial targets are met.

Details of the deal will not be announced until early next week but it is thought that the price at which the banks will convert their debt into equity is less than 150p per share.

Eurotunnel's co-chairmen, Sir Alastair Morton and Patrick Ponsolle, had been pressing for the conversion to take place at around the 265p price that it last issued shares in its 1994 rights issue. But the banks have been insisting that the conversion price should be based on Eurotunnel's market price. The shares stood at 115p before trading was suspended on Monday morning.

A source close to the negotiations said: "You can take it that the conversion price is closer to the banks' figure than Eurotunnel's."

Other elements of the debt- for-equity swap are thought to include share warrants and stabilisation notes which repay debt from a percentage of the tunnel's cash flow.

The deal, thrashed out by Eurotunnel and a steering group of six lenders, representing Eurotunnel's 225-strong banking syndicate, should allow shares in the company to resume trading early next week.

However, Eurotunnel's 750,000 shareholders will not be able to vote on the restructuring until early next year while it might take until March or April to get the agreement ratified by all members of the syndicate.

Despite the dilution that existing shareholders will suffer and a warning from the French shareholders' group Adacte that it would oppose the restructuring, a Eurotunnel source said: "We would not have agreed to this deal if we did not have more than a sporting chance of selling it to our shareholders."

Other Eurotunnel sources have likened the task of reaching agreement to "Mission Impossible". Negotiations began a year ago when Eurotunnel unilaterally suspended interest payments on its debts, then running at pounds 1m a day. Sir Alastair said a month ago that he would give it until the end of October to reach agreement with the bank and then retire.

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