Eurotunnel in advanced restructuring talks

Anglo-French cross-Channel operator Eurotunnel is in talks that may result in a new debt deal and a restart for the heavily indebted rail link, but with a new management and ownership structure.

Eurotunnel yesterday confirmed it was in talks with US investment bank Goldman Sachs and Australia's Macquarie as part of advanced discussions on a global financial restructuring of its six-billion-pound debt pile.

The company last month obtained a new deadline of July 12 to talk to all its creditors, and its shares have been suspended in Britain, and from yesterday also in France, pending the delayed publication of its 2005 results.

"Eurotunnel confirms that it is in advanced negotiations towards a global financial restructuring for the group with the Ad Hoc Committee of Creditors, and with the Goldman Sachs and Macquarie groups," the company said in a statement. Shares in Macquarie Bank Ltd were placed on a trading halt yesterday, pending the release of an announcement by the country's biggest investment bank company.

Macquarie said it had a "significant announcement pending" which it was not yet in a position to release. It declined to comment further to Reuters.

A Eurotunnel spokesman said the group was still expected to give an update on the progress of its debt talks from mid-May, and this could still be a week away.

"We know some of our high-risk creditors would be happy to get out if there was a bit of cash around. This came up during discussions on a second waiver around February-March time."   

"We're looking for our shareholders to get value, we're looking for our creditors to get some value and we're looking for the company to have a future," the spokesman said.

Yesterday's statement follows reports that Eurotunnel and its creditors were considering the issue of a hybrid bond which in time could be converted into equity capital or debt. Hybrid bonds combine elements of debt and equity, boosting a borrower's balance sheet.

"To me it looks that Goldman and Macquarie are proposing a debt restructuring, offering hybrid paper in return for the existing debt to extend the maturity and possibly convert debt into equity in the future," said Deutsche Bank analyst Nabil Ahmed.

"There has been talk they contacted (French construction and transport concessions company) Vinci, on the one hand to give their deal a French flavour and to get a transport operator on board," he added.

"Vinci might act as the service partner operating the concession and would put up only a very limited amount of money should the deal materialise," he added.

French newspaper Les Echos said last week that holders of junior debt, which represents €4.7 billion, would have the possibility of converting part of their bonds into hybrid bonds.

The conversion of debt into hybrid bonds would erase most of the outstanding bonds, which account for most of the subordinated debt, or €2.7 billion, Les Echos said.

Eurotunnel was founded in 1986. Its problems stem from the soaring costs of digging the tunnel linking Britain and France and subsequent delays in the start of train services.

In April, Eurotunnel warned it could not guarantee its future beyond 2006. Chairman Jacques Gounon said Eurotunnel estimated its net loss last year was slightly above €300 million, compared with a 2004 loss of €836 million.

Eurotunnel's committee of creditors comprises the European Investment Bank, Franklin Mutual Advisers LLC, Ambac, MBIA Inc and Oaktree Capital Management. Together, they represent 73 per cent of Eurotunnel's co-financier debt.

The committee is advised by investment bank Rothschild. Eurotunnel shares closed at €0.44 euros in Paris on Friday.