Citigroup proposes rival rescue plan for Eurotunnel

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The Independent Online

The American investment bank Citigroup is working on an alternative rescue plan for Eurotunnel that would leave the ailing Channel tunnel operator in the hands of its shareholders rather than its lenders.

Its proposal to restructure Eurotunnel's £6.2bn debt requires no shareholder approval, unlike a rival plan being headed by Goldman Sachs and Macquarie Bank.

Citigroup is offering to underwrite £3.5bn of Eurotunnel bonds that could be swapped by creditors for existing debts.

Some £3bn-worth of the new bonds would be lower risk, investment grade, with £500m of riskier, "junk" bonds. Some £1.8bn of riskier still "PIK" bonds, which pay no interest, would also be issued but not underwritten by Citigroup. Creditors would be able to exchange old bonds for new for at least 70 per cent of their current market value.

Citigroup, the world's biggest financial services group, has approached some Eurotunnel bondholders about its plan, but has yet to put it before the company's management.

Eurotunnel's market value is about £750m, but trading in its shares has been suspended in London and Paris until a refinancing has been completed. The company is still struggling with the enormous cost of digging the tunnel, which went way over budget. Without refinancing, Eurotunnel has warned that it will run out of money next year.

Citigroup hopes its plan can be laid before Eurotunnel shareholders at its annual general meeting on 12 July. That meeting was put back from 30 June to give Eurotunnel time to hammer out a deal and give shareholders a chance to consider the merits of any restructuring.

The company declined to comment yesterday on Citigroup's plan. Last week, Eurotunnel said it had agreed a restructuring deal with its biggest creditors, who hold £4bn of its debts. These included the European Investment Bank, Franklin Mutual Advisers, Ambac, MBIA and Oaktree Capital Management. This plan would roughly halve Eurotunnel's debt but requires approval from bondholders and shareholders before it can proceed.

Eurotunnel's debt must be refinanced. The company has been in talks with the investment banks Goldman Sachs and Macquarie. Their plan, unlike Citigroup's, would allow £1bn of debt to be converted into shares in three years.