The debt-laden Channel Tunnel operator Eurotunnel unveiled a take-it-or-leave-it plan to stave off bankruptcy yesterday that even its chairman, Jacques Gounon, recognised was unlikely to find favour among a significant number of creditors.
The Anglo-French group distilled months of often fractious negotiations into a restructuring proposal that would see the £6.2bn owed to lenders more than halved.
Eurotunnel is still struggling with the enormous cost of digging the tunnel, which went way over budget. Its market value is about £750m, but trading in its shares has been suspended in London and Paris until a refinancing can be put in place.
In August, the Paris Commercial Court granted Eurotunnel legal safeguards similar to those granted to American corporations under Chapter 11 and gave the company until 1 November to set out its "safeguard" proposal.
Under the restructuring plan, M. Gounon, who is also the chief executive, wants to set up a new company - Groupe Eurotunnel - to make an offer for Eurotunnel's shares in the first three months of next year. The new entity would take out a 40-year loan of "investment grade" from a consortium of banks carrying interest payments compatible with Eurotunnel's cash flow.
The company is in talks with Goldman Sachs and Deutsche Bank, as well as Citigroup, about the loan. It would also issue almost £1.3bn of bonds, which could be converted into shares within three years and a month. Some 61.7 per cent of those, worth £787m, carry a 6 per cent coupon and can be bought back by the new company by increasing its debt by £225m or by issuing new shares.
Eurotunnel's existing shareholders would scoop more than 13 per cent of the new company, which is more than had been expected. Bondholders too stand to do better than expected under yesterday's proposals.
M. Gounon's generosity comes at the expense of another class of creditor. Those holding so-called "senior debt" stand to receive less than had been agreed in May. Some, including Oaktree Capital Management, have already indicated that they will reject the proposals, but M.Gounon said yesterday that he was confident he would win the required backing from two-thirds to push through his plan. About half are already on board, he said.
M. Gounon insisted: "These proposals represent the best possible equilibrium between the demands of the different stakeholders. They retain an exceptional amount of equity and accretion potential for shareholders in comparison to other restructurings. It's not possible to satisfy everybody. That's life. Now the pressure is on the creditors. I think there is no choice at all. It will be done."
Creditors have until the end of next month to vote on the proposal. The plan will be laid before bondholders in early December. Should they reject it, Eurotunnel would be placed in administration. A vote in favour would see a draft plan put forward to the Paris court, which would then issue a Safeguard Plan for the company.
Britain and France granted a concession to operate the tunnel. Should Eurotunnel go under, its licence would revert to the governments of the two countries. In that event, they made an earlier promise to give Eurotunnel's original creditors first claim on the licence to run trains between London, Paris and Brussels.
Whatever the outcome of the restructuring, services through the tunnel are expected to continue.