Bechtel in Eurotunnel rescue bid

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A consortium headed by US construction giant Bechtel is considering bailing out Euro- tunnel by injecting £900m into the Channel Tunnel operator.

London & Continental Railways (LCR), which also counts National Express, UBS and SNCF as shareholders, met with Eurotunnel executives and Department of Transport officials late last week to discuss the proposal.

Eurotunnel admitted on Monday that it was facing a cash crisis as a result of its £6.4bn debt mountain. The company must begin capital repayments in 2006, but having lost £1.33bn last year, it is in no position to do so.

LCR's plan would involve providing cash in return for operational control of the Channel Tunnel and a stake in Eurotunnel. LCR is responsible for constructing the second phase of the high-speed Channel Tunnel Rail Link from London's St Pancras station to Kent.

LCR is cash rich. It has raised nearly £1bn through the bond market to repay a government loan that was provided to fund the rail link. However, the loan doesn't need to be repaid in full until 2082, with the next tranche due in 2010. Well-placed sources said that one plan under discussion would see LCR deferring the loan payment to the Government to allow it to rescue Eurotunnel.

LCR's largest shareholder is Bechtel, with a 22.4 per cent stake. But the Government holds one special share in the company, which gives it a say in LCR's strategy. Insiders said the Government wanted LCR to help Eurotunnel.

A spokesman for the Department of Transport said: "There have been discussions with Eurotunnel and LCR. However, there is absolutely no chance of us bailing Eurotunnel out with public money."

An LCR spokesman said: "We have discussed how LCR might feature in the future of Eurotunnel. LCR will get back to Eurotunnel in the next few weeks."

Any restructuring would involve lengthy negotiations with Eurotunnel's banks and bondholders, which own a complex tangle of debt. While creditors are concerned about Eurotunnel's ability to pay, some are pleased the company is addressing its financial problems early.

The deal will also have an impact on the passenger train operator Eurostar and rail freight operator EWS.

Eurotunnel is proposing to reduce its track access charges by up to 75 per cent to encourage operators to increase the number of trains travelling through the tunnel. The Government currently pays the charges for both EWS and Eurostar, but this arrangement will expire in April 2005 and November 2006 respectively.

Eurostar said it was considering running more trains to Paris and Brussels. In its last set of accounts filed at Companies House, EWS warned that unless Eurotunnel "materially reduces its charges" after April 2005, it would stop operating through the Channel Tunnel altogether.

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