Tunnel reaches deal with banks

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An agreement to restructure Eurotunnel's pounds 8bn debt mountain is set to be announced in Paris this morning, finally rescuing the Channel tunnel operator from the threat of receivership after a year of knife-edge negotiations with its banks.

The president of the French commercial court, Jean-Pierre Mattei, is expected to report that Eurotunnel and a six-strong committee of lenders representing its 225 banks have reached a deal on the debt renegotiation after an intense round of talks yesterday.

Details of the package may not emerge until later in the week although the deal is expected to involve the banks taking an initial 49 per cent stake in Eurotunnel. They will swop a further tranche of their debt for convertible bonds which, if converted, would give the banks control over the Channel tunnel.

Neither Eurotunnel nor the banks would comment last night. But it is understood that a breakthrough came in the marathon negotiations late yesterday afternoon. Details were being finalised last night.

The banking syndicate has been represented in the talks by a steering group made up of Eurotunnel's four agent banks - NatWest, Midland, Credit Lyonnais and Banque Nationale de Paris - the European Investment Bank and the European Coal and Steel Community.

The agreement with Eurotunnel will have to be approved by the 25 instructing banks that represent other members of the 225-strong consortium. It will then have to be ratified by each of the lenders in the syndicate.

As the agreement will need the unanimous approval of all the bank creditors, this process could take until the early part of next year.

Eurotunnel suspended interest payments on its pounds 8bn of junior debt in September last year after it became clear that it could not service the huge loans. Interest payments were running at pounds 1bn a day. It has been negotiating the debt restructuring since then.

A deal was almost brokered during talks last weekend but British banks involved held back from agreeing the details of the restructuring. Eurotunnel has been holding out for a deal that will prevent its 715,000 shareholders being too heavily diluted. It has also pressed for a clause in the agreement allowing it to redeem the convertible bonds provided it meets certain financial targets.