Accept rescue plan or face bankruptcy, warns Eurotunnel chief

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Eurotunnel, the debt-ridden Channel Tunnel operator, finally unveiled its latest rescue plan yesterday, coupled with a warning that unless shareholders and bondholders backed the deal it would mean bankruptcy.

Under the terms of the deal, Eurotunnel's £6.2bn of debts will be cut to £2.9bn, in return for which creditors could end up owning 87 per cent of the tunnel.

The rescue plan, the fifth to be launched since construction of the tunnel began almost 20 years ago, involves raising £2.15bn in new senior and mezzanine debt facilities to refinance existing borrowings. Holders of a further £1.8bn in junior debt will be asked to accept £1bn worth of "hybrid notes" which start to convert into shares in three years.

A group of bondholders who own £1.9bn of Eurotunnel's most subordinated debt will be offered £75m for their bonds. The senior debt will be underwritten by Goldman Sachs and Barclays. Goldmans and Macquarie Bank will underwrite the issue of hybrid equity and retain a portion of it, meaning that they could become big shareholders in the Channel Tunnel when the notes start to convert into shares in 2009. The two other "cornerstone" owners of the hybrid notes will be Oaktree Capital Management and Franklin Mutual, which are both existing creditors of Eurotunnel.

The Eurotunnel chairman, Jacques Gounon, told a press conference in Paris that although the effect on shareholders and bondholders could be severe, the alternatives were either bankruptcy or substitution. M. Gounon said shareholders would also have the right to subscribe for warrants convertible into shares while the company had the option to buy back the hybrid notes before they converted into equity. Assuming the company performed "reasonably well", he estimated shareholders would retain 45 to 50 per cent of the company with no dilution at all for three years.

Shareholders will vote on the financial rescue at their general meeting on 12 July. Final approval will not occur until September when they will be asked to swap their existing holdings for shares in a new French holding company, listed in London and Paris. Under a twin-track approach, discussions will continue with bondholders in an effort to get their backing for the rescue deal.

Nicolas Miguet, the convicted fraudster who succeeded in kicking out the previous Eurotunnel board, said he would back the rescue deal. A spokesman for the bondholders described the terms as "overly complicated and totally unattractive."