Troubled Eurotunnel wins debt protection 02/08/2006 00:00

PARIS, Aug 2, 2006 (AFP) - A Paris commercial court granted Eurotunnel protection from creditors on Wednesday, enabling the operator of the Channel Tunnel to freeze payments on its debt mountain of 9.0 billion euros (11.5 billion dollars).

Company chief executive Jacques Gounon said the way was now open for a swift resolution to deadlocked talks with creditors to halve the debt, declaring: "Negotiations should result in a satisfactory proposition quite quickly."

On leaving court, he added: "A solution does not exist at the moment but the willingness to find a final solution can be considered as a truly common ambition.

"The company, assisted by its two administrators, is going to relaunch negotiations immediately, starting with its last proposition of July 12 2006."

Eurotunnel, which operates twin rail tunnels between France and England, had warned it needed protection to avert liquidation procedures at the end of September and had proposed a halving and restructuring of the debt.

The decision came as small shareholders, who have seen the price of Eurotunnel shares fall to a fraction of their value since their launch in 1987, appealed to French President Jacques Chirac for help in finding a solution.

The company made the court application after two days of talks with creditors had failed to produce a deal three weeks ago. Informal negotiations since have also failed.

The court decision gives Eurotunnel shelter under a new French safeguard procedure, similar to US Chapter 11 bankruptcy law, to help companies avoid declaring bankruptcy.

This is the first time it has been used in France for such a high-profile company.

Eurotunnel, which had warned that it had enough cash to continue operating only for six months, will be allowed to stop paying interest on its debt while continuing negotiations.

The company has said that there was an "implicit consensus" that its sustainable level of debt was about 4.2 billion euros.

Eurotunnel amassed its enormous debt pile during the construction of the Channel Tunnel rail link, which was built in the 1980s and 1990s without public financing on the insistence of then British prime minister Margaret Thatcher.

The company was facing possible bankruptcy early next year when available cash to fund the business was forecast to run out and it must begin to repay the capital of its debt.

But many expert observers say it is unlikely that the tunnel will cease operating.

The Adacte group representing small shareholders urged Chirac to find a solution.

In a letter to the French president, a copy of which was obtained by AFP, Adacte chairman Joseph Gouranton reminded Chirac that he had signed the tunnel concession contract granted by the French government to Eurotunnel in 1987.

"We are convinced that you have answers," to the current crisis, Gouranton wrote, adding that many solutions existed but "do not appear to have been examined".

Liquidation could be avoided if the main creditors, namely the banks that lent Eurotunnel money to finance the Channel Tunnel project, took over the company to reimburse their debts, Gounon has explained.

Adacte says that 95 percent of the 4.0 billion euros invested by shareholders has been lost, and the company has said that under any restructuring deal existing shareholders must retain a significant proportion of the equity.

Eurotunnel was listed in Paris in 1987 at 37 francs a share, equal to 5.34 euros, but traded at 0.44 euros when shares were suspended in May as the debt crisis grew.

Eurotunnel's debts are split between three categories of creditors: senior (532 million euros), junior (5.77 billion euros) and "subordinate", or bondholders (2.775 billion euros).

Copyright AFP

Subject: French news