Tunnel banks to propose debt swap

Banks negotiating with Eurotunnel over an pounds 8.1bn debt reconstruction are expected next week to propose an immediate swap of part of the debt for 49 per cent of the equity in the company.

Reports from Paris last night said the four lead banks, including NatWest and Midland, are to start talks with Eurotunnel next week on the plan.

A proposal from the banks to take just under half the equity in the company is less tough than some shareholders had feared, against a background of cash surpluses that are a fraction of the interest bill.

Eurotunnel sources indicated that no proposal had yet been made to the company, and it is not clear whether it would accept a 49 per cent swap.

There had been suggestions that the banks would insist on taking anything up to 90 per cent of the company from shareholders in return for agreement to restructure the debt, on which interest payments were suspended last September.

The Paris sources said the debt restructuring agreement was reached last Sunday among National Westminster Bank, the HSBC Holdings subsidiary Midland Bank, Banque Nationale de Paris, Credit Lyonnais, the European Investment Bank and the European Coal and Steel Community.

The lead banks are believed to have already won agreement on their proposals from the larger group of 25 instructing banks overseeing the financial reconstruction talks, which are due to begin next week.

But they now have to enter detailed negotiations with Eurotunnel, the company co-chaired by Sir Alastair Morton and Patrick Ponsolle.

Eurotunnel has drawn up its own proposals, thought to envisage a limited debt-for-equity swap combined with a flexible plan to share the growing revenue from the tunnel between bank creditors and shareholders over the years ahead.

Assuming agreement is reached with the Eurotunnel board, the banks will then have to sell the deal to the rest of the 225-strong banking syndicates that have lent the pounds 8.1bn of junior debt in question. The syndicates have to deliver a 100 per cent vote in favour of the restructuring proposals.

The balance of the pounds 9bn debt is held by senior lenders whose interest payments are not part of the 18 month standstill announced last September.