AFTER 10 months of tortuous negotiations, Eurotunnel Chairman Jacques Gounon was finally able to announce on May 31 that agreement had been reached with the Ad-Hoc Committee representing co-financier creditors on a debt restructuring plan that could avoid the company becoming insolvent in January 2007.

A new French holding company would be formed, backed by a ’financing commitment’ from Goldman Sachs, Barclays and Macquarie. This company will refinance and therefore assume all of the existing debt, with the exception of the £740m Tier 1A (FLF2) that continues unaltered. Senior debt holders will receive the full value of their investment including interest due, and new Senior debt will be created amounting to £1810m, backed by the financing group.

Holders of Tier 3 Junior debt will receive subordinated hybrid notes convertible into shares after 2009. They get around £1bn plus £100m in cash in exchange for £1780m of debt. This could eventually leave Co-financiers with up to 87% of the holding company’s diluted equity.

Warrants issued to existing shareholders would allow them to exchange Eurotunnel units for shares in the holding company. Ultimately, therefore, they could be left with around 13% of the diluted equity.

Overall, the effect would be to cut the debt burden by 54% from £6·2bn to £2·9bn. The hope is that a well-managed operator should be able to service this out of revenue and start paying dividends eventually.

But the plan must be approved by shareholders at the twice-postponed AGM on July 27. Given the preponderance of French private shareholders who demonstrated their militant spirit by throwing out the previous board of directors en bloc in April 2004, there can be no certainty about the result.

Perhaps the most serious threat comes from holders of Infra-junior debt. The plan offers them just 4% of the face value of their debt, though Gounon says some hedge funds paid as little as 5% of the nominal value for their bonds. Nevertheless, their nominal share of the total debt is 30%, and a 75% majority of debt holders by value must back the plan if it is to go ahead.

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