View from City Road: Morton goes for gobbledegook

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Nothing is ever much of a surprise in the topsy-turvy world of Eurotunnel forecasting but for Sir Alastair Morton to claim, as he did yesterday, that the tunnel is not heading for another breach of covenants on its bank loans looks bizarre in the extreme. If aimed at sophisticated investors, it really will not do. Repeated over-optimism by Sir Alastair has made the City highly sceptical of his claims. Shareholders do not have to look far in this instance to find it justified.

The company's own interim results announcement to the Stock Exchange made it quite clear that a breach of the covenants is indeed likely. The admission is dressed up in financial language, unsuitable for and probably incomprehensible to a family audience. But it can hardly have left much doubt in the minds of investors trained to search for the real meaning of corporate gobbledegook.

Roughly translated it is that banks already take a more pessimistic line than Eurotunnel on revenue forecasts. Delays in opening have made this worse.

When the banks make their next assessment in March 1995, the company is unlikely to meet the financial performance targets which are a precondition for drawing down the new loans. It will therefore have to renegotiate the targets set in the loan covenants.

Sir Alastair believes the banks' estimates of Eurotunnel's financial performance are unduly pessimistic and that he will be able to persuade them over the next six months to accept his own calculations instead.

Some hope. Banks are only too well aware of how much time Eurotunnel has spent in breach of previous covenants, as forecast after forecast has turned out too optimistic. They are hardly likely to start believing the best at this stage.

The strange thing is that soundings among Sir Alastair's weary bankers indicate that they already see a waiver next spring as a formality. They see no reason to get tough before the tunnel has had at least one summer season's revenues below its belt. It would be more sensible for Sir Alastair to admit that the covenants are indeed going to fall again but explain that this is not yet a serious thing.