Debt-ridden Eurotunnel unveils rescue package

Channel Tunnel operator Eurotunnel unveiled a long-awaited plan to tackle its £6.2bn (€9bn) debt mountain today.

But the company warned that it would be forced into bankruptcy if shareholders failed to back the proposals later this summer.

The debt overhaul – achieved with financing from Goldman Sachs, Barclays and Australian bank Macquarie – will see debt levels reduced to around £2.9bn (€4.2bn).

It hinges on the creation of a new company to be listed in Paris and London and which would be the vehicle for the restructuring.

Eurotunnel said there would be no dilution of shareholders’ interests for three years, until the conversion of £1.8bn (€2.6bn) of debt from 2009.

That could dilute holdings by up to 87%, but this figure could be reduced as the company may be able to buy back debt. At the same time shareholders, who will receive warrants to buy additional shares, will keep the chance to take part in any upside from the new company.

The plan, which has been 10 months in the making, will be put before shareholders at the company's annual meeting on July 12.

Details of the restructuring emerged as a report in the Financial Times said US bank Citigroup was interested in underwriting £3.5bn (€5.1bn) of new investment and debt, while leaving shareholders in control of the group.

Eurotunnel has repeatedly warned that without a debt overhaul it would not be able to guarantee the future of the group beyond 2007 – the point at which it is due to start paying back a significant portion of the debt.

Last month, Eurotunnel secured a waiver period that would allow for all creditors to come together for the first time to reach a “consensual financial restructuring plan”.

Creditors could call in the company’s debt and take it into their own hands if Eurotunnel is unable to reach agreement with them over its debt.

Eurotunnel faces a number of changes to its finances in the next couple of years that will worsen its predicament – including the repayment of capital on its loans from the beginning of 2007.

Shares in Eurotunnel are currently suspended in London and Paris while the company attempts to sort out its future.