Eurotunnel seeks £6bn debt waiver

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Eurotunnel, the embattled operator of the Channel Tunnel, last night took the first formal step towards renegotiating its £6.4bn debt, a move which is likely to all but wipe out its 1 million small shareholders.

The board of the loss-making Anglo-French company announced it had unanimously agreed to request a waiver of its credit agreement - something which will require the majority support of Eurotunnel's banks.

Provided the request is granted - and Eurotunnel said it expected to receive approval "as soon as possible" - then it will pave the way for talks to begin on what will be the biggest and most complicated debt-for-equity swap in more than a decade.

Without a financial restructuring Eurotunnel risks going under by the end of this year, when it has to begin paying its £320m-a-year interest bill in full. Eurotunnel said it expected negotiations with its banks to take eight months.

Eurotunnel said it had reached agreement with the ad-hoc committee representing its principal creditors on a reduction in the fees it will have to pay their advisers as part of the debt renegotiation. These fees, estimated initially at £13m, have been a bone of contention among the Eurotunnel board, so much so that one non-executive director, thought to be Joseph Gouranton, refused to sign the agreement.

After a Eurotunnel board meeting to approve the request for a waiver, the chairman Jacques Gounon, said: "This convergence of positions between Eurotunnel and the ad-hoc committee is very positive."

However, a spokesman for the creditors' committee immediately contradicted him, cautioning that it had not yet reached agreement because there were still a number of "outstanding issues" to resolve. Nevertheless, the committee added: "We hope to be able to engage in further constructive discussions with the board with the aim of agreeing acceptable terms for a waiver shortly."

The waiver is needed because, technically, the mere act of asking its banks to renegotiate its debt constitutes an act of default under the credit agreement. The creditors now have 30 days to decide whether to grant the waiver. Eurotunnel needs the backing of 75 per cent of those holding its £400m in senior debt but only a simple majority of holders of its £3.2bn of junior debt. The members of the ad-hoc committee account for about half the total junior debt.

Although Eurotunnel said its intention would be to reach a financial agreement which ensured the future of the company "while ... maintaining shareholder interests" it is virtually certain that existing investors will be savagely diluted.

The last big financial restructuring of Eurotunnel in 1998, involving a £1bn debt-for-equity swap, resulted in the banks taking a 26 per cent stake in the tunnel. Part of that agreement entitled Eurotunnel to begin issuing "stabilisation notes" instead of cash to pay interest on its remaining debt. The facility runs out at the end of this year at which time Eurotunnel is expected to take advantage of its depressed share price to convert the notes into equity, diluting existing shareholders by about 15 per cent but cutting some £29m from its annual interest bill.

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