Eurotunnel in talks on debt repayments

BELEAGUERED Channel Tunnel operator Eurotunnel has begun talks with creditors owed £6.4bn to draw up a framework for renegotiating its loans.

Eurotunnel, with interest payments more than double its e70m (£49m) of first-half operating profit, survives only because part of that bill is rolled up into more debt.

But from 31 December next year it is scheduled to resume paying its interest bills in full.

'I can confirm discussions are ongoing,' a Eurotunnel spokesman said. 'Before any discussions can take place about the debt and the future financing of the company, there would need to be a legal framework in place.'

Talks aimed at debt restructuring have been keenly awaited since small investors ousted Eurotunnel's British dominated-board on 7 April and elected a French team led by former tour operator Jacques Maillot.

Short of doubling operating profits, the board has little choice but to negotiate a debt restructuring agreement with its creditors, which include an international panel comprising hundreds of banks as well as US re-insurer MBIA. Even tracking down the owners of the fragmented debt is difficult, since some has been sold to distressed-debt funds.

In October, the board unveiled the outlines of a recovery plan, codenamed Dare. Under this, the Anglo-French company would seek to increase capacity utilisation on its truck-carrying shuttle trains between Folkestone and Coquelles, France by offering discounts for bulk advance booking.

But the company continues to be hit in the cross-Channel market by tough competition from ferry operators and budget airlines.

The obvious solution, according to restructuring experts, is a debtfor-equity swap, reducing the burden below the £4bn or so that bankers believe it can support.

But that would hugely dilute more than 400,000 French small investors who piled into the shares, now reduced to a penny stock, last year and this spring. Some paid up to £8 a share for the equity following Eurotunnel's over-optimistic 1987 float.

In recent weeks, French retail investors have begun reiterating demands for the two governments to help bail out Eurotunnel, although intervention is expressly barred by the agreement under which the tunnel was built.

Unfortunately, the possibility it might fail to pay its way was never considered.

As a result, nothing defines whether the company would fall under the French or British insolvency regime, an omission that can only reinforce the desire of the company and its creditors to find an agreed solution to the debt overhang.