Eurotunnel issues bankruptcy warning
Channel Tunnel operator Eurotunnel today warned it could be declared bankrupt this week if last-ditch talks over its crippling debt mountain fail.
The company entered two-day talks with rebel bondholders today in a bid to thrash out a deal to tackle its £6.2bn (€9bn) debt.
But it said that if a deal was not struck by the end of tomorrow the company will be forced into bankruptcy after a warning from its auditors.
That could mean control of the tunnel being passed to a group of banks, although many of the creditors believe that the courts would not declare the company insolvent because it has enough cash to last until January.
The French courts could also appoint an official to devise a restructuring plan, as happened with Eurotunnel in 1998.
Eurotunnel today insisted its goal was to reach an agreement to secure the future of the company but said bankruptcy was a distinct possibility.
“These are eventualities that a reasonable management has to prepare for,” said a spokesman. “But our goal is to reach an agreement with all our creditors.”
The spokesman added that the discussions are a question of company ownership and business will carry on as normal, no matter what.
Eurotunnel agreed a financial restructuring with its major creditors in May which would see debt levels reduced to £2.9bn (€4.2bn).
But it was rejected by junior bondholders accounting for £1.9bn (€2.75bn) of the current debt because the proposal offered them just £75m (€108.4m).
Eurotunnel said it must now reach an agreement with the rebels by tomorrow because that is when the company’s waiver from the major creditors to hold such discussions expires. Without the waiver, further talks represent a default by Eurotunnel on its debts.
Auditor KPMG is obliged to make a statement on Eurotunnel’s financial position at an extraordinary general meeting with shareholders on July 27.
Eurotunnel today said that with such a statement lingering over the company it could be declared bankrupt before that date if a deal is not reached.
The spokesman said: “Could we justifiably continue to run the company? Probably not. If there is no deal, bankruptcy might come before July 27.
“It all hinges on the negotiations. If the negotiations can reach a consensual conclusion, the financial restructuring can go ahead.”
But Arco, a group representing more than 70% of the rebel bondholders, cast doubt over Eurotunnel’s claims today and said the company could get a new waiver so discussions could continue.
An Arco spokeswoman said: “The waiver is not a stumbling block. It is a threat. It is an excuse that the management of Eurotunnel is giving to place pressure on the creditors.
“It is simply necessary for the management to ask for a new waiver. If the management decides not to ask for a waiver then the company has enough cash to last until January.
“The company can file for bankruptcy if it wishes but it is by no means obliged to do so and we believe it is not in anyone’s interests.”
The current talks follow months of negotiations with creditors over plans to reduce the massive debt burden.
Eurotunnel has repeatedly warned that without a debt overhaul the company will be not able to guarantee its future beyond 2007 – the point at which it is due to start paying back a significant portion of the debt.
Eurotunnel suffered from soaring costs during the building of the link between England and France and was hit further by delays to the start of train services and lower-than-expected traffic.
