Eurotunnel to buy back £1.5bn of debt

Eurotunnel yesterday unveiled plans to buy back almost £1.5bn of its debt as part of a complex securitisation deal, which continues the financial restructuring of the Anglo-French consortium.

Eurotunnel yesterday unveiled plans to buy back almost £1.5bn of its debt as part of a complex securitisation deal, which continues the financial restructuring of the Anglo-French consortium.

The company said the repackaging of its debt was a response to requests from lenders who wanted the chance to sell out but found it difficult to do so because the market in the company's debt is not very liquid. Eurotunnel's tier one junior debt has been trading in recent weeks at 83-84 per cent of its par value. Holders of Eurotunnel's £3.6bn in junior debt will be invited to sell up to 40 per cent of their holdings through a tender being organised by Dresdner Kleinwort Benson and Merrill Lynch. The debt will be bought back by two companies, which are supported by Eurotunnel but not owned by it. They will fund the purchase of the debt by issuing investment grade bonds. The bonds themselves would be repaid out of Eurotunnel's ticket revenues and other income it receives such as commercial sales.

The tender is expected to appeal mainly to US hedge funds who bought into Eurotunnel at the time of its financial restructuring in 1998. However, bankers advising on the deal said that European lenders were also likely to be interested. The tender offer is expected to conclude in early December.

Eurotunnel should benefit financially from the deal since the cost of servicing the bonds is likely to be less than the interest payments on the debt they replace. Any surplus will pass to Eurotunnel but not until all the junior debt has been repaid. This means that in the short-term its interest payments will remain largely unchanged.

Peter Kappel of DKB said that the issuing of the investment grade bonds would provide an opportunity for a number of institutional investors who had no exposure to Eurotunnel to buy into the business.