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Eurotunnel Wins Vote on Restructuring

Eurotunnel has won a critical vote on restructuring, when bondholders decided to back a plan to cut its debt and keep it from going bankrupt.

Eurotunnel has been in talks with creditors on a restructuring of its 6.18 billion-pound ($12 billion) debt load since April 2005, but it was placed under French-court protection from creditors on Aug. 2 after failing to reach an out-of-court deal. The French procedure freezes debt payments and protects companies from bankruptcy _ a process similar to Chapter 11 in the U.S.

The company's troubles date back to the project's launch in the late 1980s. The cost of digging the 50-kilometer (30-mile) tunnel was underestimated, and traffic has fallen short of initial forecasts ever since its 1994 opening.

The troubled undersea rail link operator had already received the approval of its senior creditors on the proposed plan, which was given at a vote on Nov. 27.

The bondholder vote Thursday was potentially more contentious, however, given some bondholders' opposition to the plan and objections that have been made to the courts about the voting process. Also, there had been concerns by Eurotunnel that the quorum to make the vote valid wouldn't be met as many potential voters were unknown bearer bondholders.

Eurotunnel's' bondholders were called to vote in two groups: One group for the bonds issued by Eurotunnel's British company and one for those issued by its French company.

For the French company, 102 out of 149 individual bondholders participated in the vote; bondholders holding 82.17 percent of bonds issued by that company voted in favor of the plan. For the British company, the vote was much closer _ 88 out of 131 bondholders cast votes, and bondholders holding 69.22 percent issued by that company voted in favor.

The vote was delayed by more than three hours after a printing machine crashed and the voting forms had to be written by hand, according to one person familiar with the situation. The court administrators painstakingly went through all the voting ballots and documentation before the vote could begin, said another person at the vote.

There remains, however, a series of hurdles that Eurotunnel has to clear.

The proposed debt restructuring plan still needs to be sanctioned by the Paris commercial court. However, the court and the plan face a slew of litigation from certain senior creditors such as Oaktree Capital Management and some bondholders that are opposed to the restructuring have already filed objections to the process with the French court.

"Even if today's vote is successful, there are many more hurdles to overcome before the safeguard plan could be executed," said Michael Cox, analyst at the Royal Bank of Scotland in London, before the vote. "In addition to the various legal challenges, shareholders must also approve the proposal."

Eurotunnel has said it needs at least 60 percent of shareholders to tender their shares in an exchange offer in the new year. Existing shareholders will be diluted by 87 percent as a result of the restructuring.