Eurotunnel edges closer to debt talks

Eurotunnel, the impoverished Channel Tunnel operator, has won the permission of a large group of its creditors to begin financial restructuring talks aimed at solving the problem of its £6.4bn debt pile.

Eurotunnel, the impoverished Channel Tunnel operator, has won the permission of a large group of its creditors to begin financial restructuring talks aimed at solving the problem of its £6.4bn debt pile.

The company has received support for a waiver to be granted from its credit agreements from banks and fund management groups holding £3.2bn of junior debt.

A waiver would allow the company to enter negotiations with the institutions about possible resolutions to its financial problems. These are likely to include a huge debt-for-equity swap that will massively dilute the existing 1.25 million, mainly French, shareholders.

Eurotunnel needs the permission of another group of creditors that holds £400m of senior debt before the waiver is official and meaningful talks can begin. The Anglo-French business formally requested permission from this second group yesterday and hopes to hear within the next 30 days.

In its entire existence Eurotunnel has only once generated enough cash in a 12-month period to pay the £320m-a-year interest bill on its debt. However, its creditors have allowed it to issue interest-free "stabilisation" notes to meet the payments, but that arrangement will not continue beyond 2005.

It cannot renegotiate its finances with the banks because that would trigger a default clause in its credit agreements, which is why it has to first seek a waiver from these agreements before talks can begin.

A spokesman for the holders of the company's junior debt said: "If approved, a waiver would allow the company and its creditors to explore options for a restructuring of the capital structure that could relieve the financial problems Eurotunnel faces."