Eurotunnel unveils 'make or break' debt deal

Anglo-French Channel tunnel operator Eurotunnel has unveiled its long-awaited debt restructuring deal, backed by three international banks, and warned it would go bankrupt without it.

The deal, agreed with Eurotunnel's most senior creditors on May 23, is backed with a financing plan concluded with the three banks only on Tuesday night, May 30. It still needs approval from bondholders and shareholders.

Under the plan, Eurotunnel's £6.2 billion of debt would be cut by 54 per cent to around £2.9 billion, with the banks involved issuing around £2.16 billion of fresh debt.

A new French incorporated company would be set up and listed in London and Paris, while the debt will be held by a UK unit.

"There's no alternative to this plan," said Eurotunnel's Chairman Jacques Gounon at a news conference in Paris.

The deal will be presented to shareholders at the company's annual general meeting on July 12 and then, if agreed, is expected to be implemented by the final quarter of 2006.

"It is easy to criticise the deal but the question will be on July 12 if one wants the company to continue or to go bankrupt. I think the answer is very simple," Gounon said.

The consortium backing the deal is Barclays Capital, the investment banking arm of Barclays Bank, US investment bank Goldman Sachs Group Inc and Macquarie European Infrastructure Fund, part of Australia's Macquarie Bank Ltd.

"(This deal) creates a long-term solution that brings financial stability for the benefit of all stakeholders," said a spokesperson for the banking consortium.

The package also includes a new 1 billion-pound hybrid note issue, which will convert into shares in the new French holding company from 2009, and could ultimately dilute the position of the current shareholders by up to 87 per cent.

Holders of £1.78 billion of some of the lowest priority debt face the biggest writedown of their holdings.

These creditors would get £100 million in cash plus the hybrid notes in exchange for their current notes and bonds. the hybrid issue will be listed and is tradeable.

Many of these junior debt holders have indicated they would not be taking up their entitlement to the hybrid notes, leaving the four biggest holders as Franklin Mutual Advisers LLC, Oaktree Capital Management, Goldman Sachs and Macquarie.

These four institutions will have the right to name four directors on the Eurotunnel board and control a special company that owns a preferred or 'golden' share in Eurotunnel so that they could block any unwelcome takeover bid.

Existing Eurotunnel shareholders will get one new holding company share, free warrants to subscribe to additional shares and some travel privileges. The company is also considering a 40-for-1 share capital consolidation plan.

- REUTERS