Eurotunnel on Tuesday threw down the gauntlet to its creditors by calling for them to forgive two-thirds of the struggling Channel tunnel operator’s £6.4bn ($12.2bn) debts without receiving any shares in return.
Jacques Gounon, who took over as chairman of the Anglo-French company two months ago, said creditors had “no choice” but to accept a big write-off of their debts if they wanted to avoid the alternative of bankruptcy in less than two years.
He also claimed creditorscould face political obstaclesto exercising their right ofsubstitution, which allowsthem to seize control of thetunnel if Eurotunnel defaults.
Eurotunnel said Mr Gounon was only expressing his “gut feeling” and had not discussed the matter with either the UK or French governments.
His comments reflect the dire state of relations between the new management, installed by angry shareholders after they ousted the board last year, and its more than 100 creditors.
The demands for a big write-off were rejected by an ad-hoc committee of creditors, which called for a more “realistic” position when debt restructuring talks start this summer.
“Eurotunnel’s suggestion would not be acceptable to the majority of debt holders, whose support is necessary for any capital restructuring,” said the committee, which includes MBIA, the European Investment Bank, Franklin Mutual Advisors and Oaktree Capital Management.
“We look forward to starting negotiations within the framework of Eurotunnel’s existing obligations and in the spirit of economic realism,” said the committee, which holds 69 per cent of its £4.5bn junior debt and 15 per cent of its £400m senior debt.
Mr Gounon said he wanted to avoid shareholders being diluted by a debt-for-equity swap, seen by analysts as the most likely solution at Eurotunnel.
“Creditors must accept that dilution is not a solution, even in a small amount,” he said.
Last week, Eurotunnel won the support of senior creditors to begin talks on restructuring its crippling debt. It must present a restructuring plan to creditors by July 15. Mr Gounon said the plan would be shown to shareholders in June.
Eurotunnel yesterday reported a net loss of £570m for 2004, including an impairment charge of £395m, compared with a £1.33bn loss the previous year. Operating profit rose slightlyto £171m but was still wiped out by net interest charges, which fell 5 per cent to £298m.
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