The prospectus for Eurotunnel's financial reconstruction, due to be sent to shareholders and banks in the next few days, shows American banks, led by the New York investment bank Lazard Freres, have acquired 24 per cent of the debt, mainly from small Japanese banks.
This increases the likelihood of the complex restructuring being approved by the banking syndicate when it votes on the deal in the autumn. Approval is also needed from Eurotunnel's 720,000 shareholders at an extraordinary meeting scheduled in Paris on 10 July.
The restructuring will see the banks emerge with a stake of at least 45 per cent in Eurotunnel by swopping pounds 4.7bn of their debt for shares and other forms of paper. Eurotunnel executives had feared being held to ransom by a minority of renegade banks since the restructuring needs the support of 100 per cent of the syndicate.
This is still possible but it is less likely following the changes in the banking syndicate. The number of banks has fallen from 225 to 174 and the share of the pounds 8.7bn in junior debt owed to Japanese banks has fallen from 19 to 8 per cent.
The debt is thought to have changed hands at about 40-45 per cent of its face value during a six-week period starting at the end of March. A fifth of Eurotunnel's debt is now owned by just four US banks. The biggest of these is Lazards, which controls 8.7 per cent of the debt with a face value of pounds 757m, followed by Bankers Trust, Merrill Lynch and Bank of America.
The prospectus forecasts that Eurotunnel will break into profit in 2005 and start paying dividends in 2006 provided more optimistic traffic assumptions prove accurate and the high-speed Channel Tunnel rail link opens on time in 2003.
If revenues are lower, interest rates higher than forecast, the railways perform more poorly and the ferry operators remove less capacity, then Eurotunnel says it will take until 2010 to start paying dividends.
The restructuring needs to be approved by two-thirds of French investors and three-quarters of British shareholders in July. For the meeting to go ahead, shareholders speaking for at least 25 per cent of Eurotunnel's equity must attend or have sent in proxies.
Patrick Ponsolle, Eurotunnel's executive chairman, told an analysts' meeting in London yesterday that if the restructuring was not approved then insolvency procedures would probably have to start in Britain and France.
The prospectus shows that the financial restructuring will cost Eurotunnel pounds 52m in fees and expenses. This is made up of pounds 25m in bank fees and pounds 27m in advisory fees and Eurotunnel's own costs. Its main financial adviser is Dresdner Kleinwort Benson.
The prospectus also discloses that Eurotunnel's directors will be eligible for medium-term bonuses worth 50 per cent of their salaries if the company meets certain targets on operating profits. This is in addition to 30 per cent annual bonuses already payable. Mr Ponsolle receives a salary of Fr2m while his British counterpart Robert Malpas gets pounds 160,000.
Eurotunnel has produced a range of forecasts depending on traffic levels and whether its concession is extended to 99 years. With an extension, the upper case projects pre-tax profits of pounds 110m in 2005. Without one, the lower projection forecasts a loss of pounds 31m in 2005.
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