Eurotunnel faces ruling on creditor protection

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By Marcel Michelson

PARIS (Reuters) - A Paris commercial court is set to rule on Wednesday on a request by Eurotunnel to be put under creditor protection, since it has failed to reach a deal over restructuring 6.18 billion pounds of debt.

After a week of discussions the parties are no closer to an agreement, sources familiar with the talks said.

Last week, the court decided to delay its decision to give more time for talks between the various groups of creditors of the Channel Tunnel operator.

"We are working, and we are advancing," said Nina Mitz, a spokeswoman for the ARCO group of Eurotunnel bond holders.

"There have only been two meetings, and we are ready to continue our discussions under the auspices of the court," she said.

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A Eurotunnel spokeswoman said there was still no debt deal and that Chairman and Chief Executive Jacques Gounon would go to the court on Wednesday to hear the decision.

On Wednesday the French court has three options to consider: It could delay a decision again, dismiss the case or begin the "safeguard procedure", which is like Chapter 11 bankruptcy in the United States.

If the court agrees to the "safeguard procedure" -- a new law not yet tried on a large company -- it would appoint administrators to draw up a debt recovery plan. During an initial period of six months, extendable twice, Eurotunnel would not make any payments on the debt.

While Eurotunnel and its creditors tried to reach a consensual agreement that would also take into account the interests of shareholders, the court can impose a solution.

CONSENSUS

If the court does not agree to the new procedure, then Eurotunnel will continue to make debt payments. Gounon said last month the company would be insolvent in January if no agreement were reached by September.

Eurotunnel said last week there was a consensus that the sustainable debt level for the group was about 2.9 billion pounds -- less than half the current level -- and that current shareholders must retain a significant stake.

Eurotunnel asked to be placed under court protection after the bondholders rejected a restructuring deal adopted by the majority of its lenders.

Passenger trains will still run in the Channel Tunnel, which is the only fixed link between Britain and the rest of Europe.

Built between 1987 and 1993, the project faced soaring costs while revenue projections proved too optimistic.

Creditor groups have discussed for 15 months how to restructure the company’s mounting debt. Eurotunnel shares have been suspended since May 12.

(Additional reporting by Elena Moya in London)

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