Eurotunnel unveils debt-restructuring plan

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Eurotunnel has secured financing for a deal that should allow the heavily-indebted company to emerge from beneath the £6.2bn ($11.6bn) debt mountain that threatens to crush it as soon as January.

The step is the most important sign so far that 10 months of talks between the company and a key creditor group will produce a deal to rescue the Channel Tunnel operator from insolvency.

But the deal failed to persuade bondholders, with Arco, the organisation representing a majority of holders of the £1.9bn lowest tiers of Eurotunnel’s debt, rejected the terms as “overly complicated and wholly unattractive”.

Jacques Gounon, Eurotunnel’s executive chairman, on Wednesday outlined the details of two deals – one reached on Wednesday over the financing of a rescue and another, previously confidential, deal signed last week over restructuring terms.

The agreements mean the company could soon be controlled by large Anglo-Saxon financial institutions.

Speaking in Paris, Mr Gounon warned Eurotunnel’s shareholders and holders of the lowest tiers of debt – either of which could still prevent a deal from going ahead – that no other restructuring deal for the company was now possible.

The statement appeared to be a warning to shareholders to ignore rival restructuring proposals produced by Citigroup, the investment bank. “The only alternatives are the plan we are proposing or bankruptcy,” Mr Gounon told journalists.

Wednesday’s announcement follows two sets of talks. One has taken place between Eurotunnel and the Ad Hoc Creditors’ Group, which represents a majority of the £3.95bn so-called co-financier debt from just below the £366m senior levels that will be untouched by any restructuring.

The other has taken place between Eurotunnel and a consortium led by Goldman Sachs, the European infrastructure fund of Australia’s Macquarie Bank and the UK’s Barclays.

Under the agreement with the Ad Hoc Creditors, Eurotunnel’s debt will be reduced to £2.9bn. Holders of the £1.78bn of debt just below the unaffected senior levels will be offered £1bn of hybrid notes due to convert into equity in three stages between 2009 and 2011.

Under the deal sealed on Wednesday, the restructuring will be financed by the Goldman Sachs-led consortium, which may purchase significant quantities of debt from existing holders.

Holders of the hybrid notes – likely to be dominated by Goldman Sachs, Macquarie, Oaktree Capital and Franklin Mutual – will be able to appoint four members to the 11-member board of a new French Eurotunnel holding company. They will be able to block certain key decisions.

While Eurotunnel will have the right to buy out hybrid note holders before conversion, hybrid note holders could end up holding as much as 87 per cent of the new company after notes convert to equity.

Under the deal, holders of Eurotunnels £1.9bn of bonds, who were not included in the negotiations, look likely to be offered only £100m to £150m in cash, which may not be enough to persuade the necessary 75 per cent to vote for a deal.

Arco, the body which represents more than 60 per cent of bondholders, late on Wednesday described the Goldman Sachs consortium’s proposals as “opportunistic” and “setting unrealistic (and undeliverable) shareholder expectations”.

“The offer significantly undervalues Eurotunnel - particularly in the light of other, recently publicised offers...The bondholders will not be held to ransom by the company’s threat of bankruptcy as it is not the only alternative,” Arco added.

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