Junior creditors may sabotage latest plan to rescue Eurotunnel

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The Independent Online

Eurotunnel's latest plan for escaping from beneath its £6.2bn of debt could be scuppered by junior creditors who face being squeezed out with no compensation under the proposals being examined.

The plan involves converting some of Eurotunnel's £4bn of co-financier debt into new financial instruments underwritten by Goldman Sachs and Macquarie. These would attract lower rates of interest and would be convertible at a future date into equity.

At the same time the plan is understood to envisage Eurotunnel's £1.8bn of bonds being written off altogether. The effect would be to halve its debts to about £3bn and make them serviceable on a long-term basis from revenues earned from the Channel Tunnel franchise.

A spokesman for the ad hoc committee, which represents creditors owning the majority of the co-financier debt, declined to comment, as did Close Brothers, which is advising the junior creditors. But one source close to the talks said: "The bond holders are not going to react kindly to being wiped out."

Goldman Sachs and Macquarie are active investors in infrastructure assets and are involved in rival bids for the airport operator BAA. By underwriting the new financial instruments, they would enable those creditors who wanted to cash in their holdings to do so. The amount of debt that could be substituted in this way will depend on the level of borrowings the tunnel can support in the long-term and its enterprise value.

After the board meeting yesterday, Eurotunnel made a statement saying it was "in discussions with its creditors and several potential investors" about a global financial restructuring. It added that it could not comment further, but added: "All rumours, comments and interpretations should be treated with utmost caution."

Eurotunnel has said it aims to update shareholders by the middle of this month on the progress of its debt restructuring talks, having gained a third waiver of its credit agreement, which runs until July. Its creditors are thought to view that timetable as "not impossible", but there is a huge amount of caution about whether a breakthrough can be made quite so quickly.

When Jacques Gounon, Eurotunnel's chairman, began the debt talks a year ago, he insisted that two-thirds of its borrowings be written off with nothing in return on the grounds that the maximum debt it could support was £2.2bn. Since then, Eurotunnel has acknowledged that some dilution of existing shareholders' equity is inevitable. Eurotunnel's operating margins have also improved after a cost-cutting programme, which has included job losses, a reduced shuttle fleet and a new method of charging freight customers.

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