A French court was due to give a ruling on Wednesday likely to determine the fate of Eurotunnel which is set for liquidation if its request for protection from a debt mountain is rejected.
Sources close to the matter said that behind-the-scenes negotiations between Eurotunnel and its creditors on an initial plan by Eurotunnel for a halving of its debt of €9-billion ($11,5-billion) had not succeeded.
Eurotunnel, which operates twin under-sea rail tunnels between France and England, took the precautionary move of asking the court for protection three weeks ago when two days of talks failed to produce a deal.
In any event, observers say, it is unlikely the crucial land link would shut down. Experts therefore expect trains to run through the tunnel for the foreseeable future.
Eurotunnel had proposed a scheme where its debt would be halved and rescheduled. Otherwise, it said, at the end of September it would have to begin procedures for liquidation because it had enough cash flow to keep running only until the beginning of next year.
The court has already delayed a decision, first for two weeks, and then for an extra week, because of the complexity of the issues. This is the first time a recent law on bankruptcy protection, along the lines of United States Chapter 11 bankruptcy law, has been used in France for such a big case of corporate distress.
Approval of the protection application would provide an extra breathing space and a new context in which formal negotiations could be resumed with the involvement of court-appointed officials.
Liquidation could be avoided if the main creditors, namely the banks that lent Eurotunnel money to finance the Channel Tunnel project, took over the company to reimburse their debts, chief executive Jacques Gounon has explained.
The company has said in a statement there was an ”implicit consensus” that its sustainable level of debt was about £2,9-billion (€4,2-billion) and that existing shareholders must retain a significant proportion of the equity.
Eurotunnel’s debts are split between three categories of creditors: senior (€532-million), junior (€5,77-billion) and ”subordinate”, or bondholders (€2,7755-billion).
Debts would be reimbursed in that order. – Sapa-AFP