Swim out from under the English Channel

Eurotunnel allowed to restructure debts

A French court yesterday gave Eurotunnel , the operator of the Channel Tunnel railway that went bankrupt last August, a chance to get out of the crisis on its own. The Commercial Court of Paris decided to temporarily stop the bankruptcy procedure, approving the restructuring of debts, a significant part of which, according to experts, will simply be written off. At least, such conditions were indicated in the new restructuring plan by the head of the company, Jacques Gounon. Loans will be used to pay off the remaining portion, and in two years Eurotunnel will begin to make a profit. “This company was saved from bankruptcy,” Nicolas Miguet, owner of 6 million Eurotunnel shares, told Bloomberg. “The court made its decision, recognizing the new reconstruction plan as the only way to save the company.”

The Eurotunnel project began in the late 1980s and aimed to provide Europeans with relatively cheap and quick travel by constructing an expensive tunnel. But its plight was largely predetermined at the construction stage, which cost $15 billion. The initial cost of the project was three times less, but each time it increased after the governments of France and Great Britain imposed new demands on the facility. From 1987 to 1994, Eurotunnel raised loans (primarily through bond issues) from 220 global banks, including MBIA Insurance Corporation, Deutsche Bank, Franklin Mutual and Oaktree Capital Management. The low popularity of the English Channel road did not allow the company to fully pay for the construction. Passenger traffic fell every year, and Eurotunnel was stuck in new debts . Its debt now stands at $11.61 billion.

Over the past year, Eurotunnel management has made repeated attempts to secure the support of bondholders, most notably Deutsche Bank, but each time creditors have rejected attempts to reach a compromise agreement. Nevertheless, Mr. Gounon's persistence was crowned with success: the company received the necessary consent from the banks for the restructuring and was able to file a petition with the commercial court of Paris. Deutsche Bank and Goldmann Sachs agreed to provide loans (4.28 billion euros), the company will also issue bonds for 1.92 billion euros. A little earlier, the plan was supported by 72% of Eurotunnel's creditors.

It is now expected that the company will receive a long-term syndicated loan, create a new company, Groupe Eurotunnel, and issue bonds worth €2 billion, which can be converted into shares. The new investment group Groupe Eurotunnel SA will make an offer to exchange French and British shares in Eurotunnel Plc and Eurotunnel SA. To implement the plan, the consent of at least 60% of the holders of their shares is required. The exchange of shares, as Mr. Gounon plans, will take place at the end of February.

The new plan remains the only way for Eurotunnel to survive, Mr. Gounon believes. Yesterday he assured passengers and representatives of transport companies that the company will continue to operate as before.

Denis UVAROV