Eurotunnel debt reduction costs £50m in fees

Eurotunnel disclosed yesterday that its latest debt refinancing exercise has cost it £50m in fees – enough to cancel the savings it will make on its interest bill for the next two years.

The bulk of the fees are payable to the Channel Tunnel operator's two investment banks, Merrill Lynch and Dresdner Kleinwort Wasserstein, which co-ordinated the debt restructuring.

The refinancing will cut Eurotunnel's debt by £446m, reducing its interest payments by £35m this year and £20m next year. From 2006 onwards they will be reduced by an estimated £30m a year.

Roger Burge, Eurotunnel's finance director, maintained that the advisory fees it had paid represented good value, taking into account the amount that the company would save in future years. Mr Burge also said that Eurotunnel hoped to get close this year to "cash flow break even" – covering its interest charges with cash flow after capital expenditure.

However, Eurotunnel's long-suffering shareholders will still not receive their first dividend until 2006 at the earliest under the terms of the big debt refinancing agreed with Eurotunnel's banks in 1998, Mr Burge added. Only about 30 per cent of Eurotunnel shares are now held in the UK, of which just 8 per cent are owned by private investors. Eurotunnel's consortium of banks, which once owned 45 per cent of the company, now owns only 5 per cent.

Under yesterday's deal, Eurotunnel has bought back £839m of subordinated debt at 43 per cent of face value, rescheduled a further £575m of junior and senior debt so that it matures in later years and converted 60 per cent of the £635m in equity notes still outstanding into ordinary shares.

In the last three years Eurotunnel has cut its debts by more than £900m. They now stand at £6bn. Apart from the £35m saving in interest payments this year, Eurotunnel will also save about £40m through the halving of its capital expenditure programme. Eurotunnel will also benefit from a rise in revenues from last year's £577m.

Mr Burge said thecrisis at the Sangatte refugee camp, which cost Eurotunnel £20m in lost profits last year, was no longer affecting the company. New security measures had solved the problem of stowawayson Eurotunnel's shuttles while its revenues from through trains were guaranteed.