Fighting it out

31 May 2006 By Taron Wade

The Channel Tunnel operator thought its deal with Goldman Sachs and Macquarie Bank was sewn up. Now it may have to think again. The US bank claims to have formed a restructuring plan that may leave more for shareholders and junior creditors than Eurotunnel’s proposal.

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Citigroup has come up with an restructuring proposal for Eurotunnel. The offer emerged just as the Channel Tunnel operator announced it had reached a preliminary agreement with its senior creditors on its own plan.

Eurotunnel's plan relies on a capital injection from Goldman Sachs and Macquarie. The new structure values the company at £3.9bn, which includes £2.9bn in debt and a £1bn hybrid bond, which in three years time will convert into equity. Goldman and Macquarie and some existing midranking creditors – Franklin Mutual Advisers and Oaktree Capital Management – will own the £1bn hybrid.

Shareholders will be given 13% of the company's equity after the hybrid converts into shares. They have the option to buy back a portion or the total of the hybrid if the company meets unspecified targets. The junior bondholders will be left with at most 8% of the face value of their original £1.8bn investment. The plan still needs to be approved by shareholders and the junior creditors. It will be put to a vote at the AGM on July 12.

Meanwhile, Citigroup has come up with an alternative structure that will leave shareholders with 100% of the company's equity – which it values at about £1bn. The junior bondholders will get an unspecified cash payment and a paymentinkind note of about £500m. Interest is accrued in such notes until maturity, when it is paid out. Citigroup's plan values the company at £4.5bn, including £3bn of investmentgrade debt and £500m of highyield debt.

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