Latest debt plan rescues Eurotunnel - again

27th November 2006, Comments 0 comments

PARIS, Nov 27, 2006 (AFP) - Eurotunnel, operator of the Channel tunnel, was rescued from looming bankruptcy on Monday when key creditors approved a plan to slash debt exceeding EUR 9 billion.

PARIS, Nov 27, 2006 (AFP) - Eurotunnel, operator of the Channel tunnel, was rescued from looming bankruptcy on Monday when key creditors approved a plan to slash debt exceeding EUR 9 billion.

The plan put forward by the chief executive of Eurotunnel, Jacques Gounon, involved cutting the total debt by more than half with the help of a 40-year bank loan. The vote, which has yet to be confirmed by a Paris commercial court, means that the debt and the company's finances would be restructured.

Eurotunnel said that it "greeted with satisfaction" the decision by these creditors, which would be followed "before the middle of December by a vote by bond holders".

Until now, the company had indicated that their vote, purely of a consultative nature, would be held one week after the vote by bank creditors.

Eurotunnel said that the vote on Monday was "a first decisive step in the process of acceptance of the plan for financial restructuring" of the group."

This vote shows how much the plan put forward amounts to an optimal balance between shareholders and creditors from whom further efforts could not be asked". Under the plan on Monday, the main part of the debt was to be cut by 54 percent to EUR 4.16 billion.

Although full details were not available, a spokesman said a rescue had been approved by main creditors representing 72.0 percent of the amount owed to them.

Of a total of 53 of these creditors holding debt of EUR 6.13 billion, 28 had voted in favour the Eurotunnel spokesman said. The plan had to win approval from half the number of this category of creditors owning two thirds of the debt.

The 40-year loan would be financed either by Goldman Sachs with Deutsche Bank or by Citigroup.

The company had said clearly in August, when it successfully applied for a so-called safeguard procedure under a new French law to give distressed firms temporary protection from their creditors, that it faced liquidation early next year.

Eurotunnel said then that it had enough cash flow to continue operations for only six months, and the court authorised it to cease paying interest on its debt. The company said there was an "implicit consensus" that its sustainable level of debt was about EUR 4.2 billion, although many expert observers said that in any case the company was unlikely to cease operating.

The tunnel was built with private funds from capital markets, much of it in the form of bonds, largely owing to insistence by the then British Prime Minister Margaret Thatcher.

But it ran into several cost overruns owing to technical problems encountered in tunnelling, and increased safety specifications, and has been through a number of crises.

The vast bulk of the debt is held by financial institutions, but a large number of small shareholders, mostly in France, bought shares when the company was floated in 1987. They have seen their investment shrink to almost nothing and are highly aggrieved at the course of events over recent years.

This has given the problems at Eurotunnel an added political dimension in France where the state is traditionally involved closely in such infrastructure projects.

The response of shareholders, notably about 800,000 of them in France who have appealed to French President Jacques Chirac for help, is not yet clear against the backdrop of campaigning for a presidential election in April.

The shares were launched at 35 francs, equivalent to EUR 5.34, rose to 128 francs (EUR 19.51) in May 1989, but were worth only 0.44 euro cents when trading was suspended in May.

Copyright AFP

Subject: French news

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