Eurotunnel slipped closer to insolvency yesterday after the Channel Tunnel operator formally applied for bankruptcy protection under French law, having failed to reach an agreement with creditors to restructure its £6.2bn of debts.
Jacques Gounon, the chairman of Eurotunnel, claimed the talks had broken down because of the "unreasonable demands" made by the company's biggest bondholder Deutsche Bank, and said unless a deal was agreed by September the Channel Tunnel operator would go bust after Christmas.
In an outspoken attack, M. Gounon accused the bank of failing to take into account the interests of Eurotunnel's 800,000 shareholders and 2,300 employees, adding: "Deutsche Bank is a well-known international company and I think there will be an image problem with it if they continue with the line they are taking." But a spokeswoman for the bondholders said it was not only Deutsche Bank that had rejected the Eurotunnel offer, and described M. Gounon's claim as "a very strange allegation".
Eurotunnel asked the Commercial Court of Paris yesterday to place it under a procédure de sauvegarde, the French equivalent of Chapter 11 protection. This means Eurotunnel will cease making interest payments to creditors but the operation of the tunnel will continue with no impact on passengers or suppliers.
The court held a two-hour preliminary hearing yesterday morning to consider the application and will decide whether to grant Eurotunnel's application on 25 July. If it grants bankruptcy protection, a court-appointed adviser will take over responsibility for brokering a deal between Eurotunnel and its various sets of creditors.
Last night that looked as if it could be a long and difficult process because Eurotunnel appears to have angered not just the bondholders who rank as subordinated creditors but also the ad hoc committee which represents holders of more than 70 per cent of its senior debt, with whom an outline deal had already been struck. The effect of its latest proposals, however, would be to leave the senior creditors worse off but give more ground to the bondholders.
Eurotunnel reached a preliminary restructuring agreement with the ad hoc committee at the end of May under which senior creditors would swap £3.3bn of their debt for an 87 per cent stake in the company, leaving them with £2.9bn of debt. Bondholders in turn would be offered £75m for bonds with a face value of £1.9bn but which trade at a fraction of that.
However, a so-called "ultimate proposal" put to the bondholders late on Wednesday would have reduced the senior debt to £2.65bn and given the bondholders a share of a £1.275bn hybrid note facility which converts into shares.
The bondholders rejected this. But the ad hoc committee, which has a legally binding agreement with Eurotunnel, was also left unhappy. "The only thing the ad hoc committee has agreed with Eurotunnel is the preliminary restructuring agreement," a spokesman said pointedly.
The bondholders claim they were given only two and a half days to negotiate the offer put forward by Eurotunnel and argue the Wednesday night deadline set by the company was always artificial because there was never a chance of reaching a deal in such a short time.
Eurotunnel claimed it had been negotiating with the bondholders since the early part of the year and that they had repeatedly cancelled meetings. "Deutsche Bank holds the key to the deal but at the last minute, without any explanation, they rejected it," M. Gounon said.
Sources in the bondholders' camp replied that M. Gounon had to find someone to blame for the failure of the talks to "save face".Reuse content