PARIS, France (AP):

The head of Eurotunnel, the operator of the undersea rail tunnel linking Britain and France, said Thursday that directors had approved his proposal to restructure the company's crippling debt.

The plan, which would create a new company called Groupe Eurotunnel, will be presented to Eurotunnel's court-appointed administrators on Friday following its approval by the board, Chairman and CEO Jacques Gounon said.

The Anglo-French company and its main creditors had agreed on a previous restructuring plan in May, but the deal was rejected by holders of Eurotunnel bonds, who said it didn't give them enough back on their investments.

Underestimated costs

Eurotunnel's troubles date back to the 'Chunnel'' project's launch in the late 1980s. The costs of digging the 50-kilometre (30-mile) tunnel were underestimated, and traffic predictions later proved to have been wildly optimistic.

Under the new plan, shares in the old company will be exchanged for new Groupe Eurotunnel shares, he said, and the restructuring will be implemented by the end of March 2007, leaving Eurotunnel with 2.84 billion British pounds (US$5.33 billion) of senior debt with a 40-year maturity.

The interest rate has yet to be negotiated, Gounon said during a conference call with reporters.

Deutsche Bank and Goldman Sachs will underwrite the financing, he said. The restructuring would include an issue of hybrid bonds worth 1.28 billion pounds (US$2.39 billion), which can later be converted into company stock.

The plan effectively dilutes the investment of existing shareholders, leaving them with a 13 per cent stake in the company that can later be increased to 67 per cent under its terms.

Taken from the Financial Gleaner, Friday October 27, 2006.