Creditors reject Eurotunnel debt write-off

Creditors of Eurotunnel, the struggling Channel tunnel operator, today rejected a proposal by the company for a major debt write-off.

As it reported its annual results, Eurotunnel said it would pursue a write-off of more than half its estimated €9bn (?6bn) debt at forthcoming financial restructuring negotiations.

"My preference would be for a significant write-off of [a portion of] Eurotunnel's debt," Jacques Gounon, the Eurotunnel chairman, said. "This will be my objective in opening negotiations."

However, Mr Gounon's opening gambit got short shrift from creditors, who dismissed it as unacceptable. "Eurotunnel's suggestion will not be acceptable to the majority of debt holders, whose support is necessary for any capital restructuring," a spokesman for a committee representing debtors said.

"We look forward to starting negotiations within the framework of Eurotunnel's existing obligations and in the spirit of economic realism."

Eurotunnel is under pressure to agree a deal with lenders before the end of this year, when it has to start paying all the interest on its debt in cash rather than convertible bonds.

The company is pinning its hopes of survival on discussions with lenders about a debt restructuring, which are likely to result in a debt for equity swap. While the firm has said it intends to protect the interests of its shareholders, an eventual debt settlement could still leave them with nothing.

Rebel shareholders succeeded in replacing Eurotunnel's entire Anglo-French board with a new, all-French team at the group's annual meeting in Paris last April.

The new management has admitted that business improvement measures would be inadequate to safeguard Eurotunnel's future beyond the next two years, and the Channel tunnel operator's problems were underlined by today's results, with a slump in income from its core truck and car services reported.

Eurotunnel said intense competition from ferries and low cost airlines between Dover and Calais had led to a 7% drop in revenues from its shuttles at constant exchange rates.

The company also said its passenger market was declining, and that it had been hit by a price war with rivals. It described the results as disappointing, saying they represented a continuation of the trend of previous years.

Mr Gounon said the further reduction in revenue had resulted from "insufficient reaction to major evolutions in the cross-Channel market in the past few years".

Nevertheless, Eurotunnel narrowed its losses to ?570m from ?1.3bn a year ago, and expected its recovery drive to begin to bear fruit this year and to make a full impact from 2006 onwards. Total turnover for 2004 was 4% lower than 2003, standing at ?555m, and the company warned it would not be able to meet its debt repayments from the first half of 2007.

From its outset, Eurotunnel - which came close to bankruptcy in 1998 - has been hit by soaring construction costs as well as competition from ferries and airlines.

Eurotunnel said intense competition from ferries and low cost airlines between Dover and Calais had led to a 7% drop in revenues from its shuttles at constant exchange rates.

The company also said its passenger market was declining, and that it had been hit by a price war with rivals. It described the results as disappointing, saying they represented a continuation of the trend of previous years.

Mr Gounon said the further reduction in revenue had resulted from "insufficient reaction to major evolutions in the cross-Channel market in the past few years".

Nevertheless, Eurotunnel narrowed its losses to ?570m from ?1.3bn a year ago, and expected its recovery drive to begin to bear fruit this year and to make a full impact from 2006 onwards. Total turnover for 2004 was 4% lower than 2003, standing at ?555m, and the company warned it would not be able to meet its debt repayments from the first half of 2007.

From its outset, Eurotunnel - which came close to bankruptcy in 1998 - has been hit by soaring construction costs as well as competition from ferries and airlines.