Debt-laden Eurotunnel has unveiled a strategy for survival involving cuts in jobs and services and said it still needs to reduce its debts.
The firm, facing mounting interest payments on £6.4 billion sterling of debt, has said it is now ready to discuss with its banks what might be a sustainable debt level, with a debt reduction strategy likely to involve a massive debt-for-equity swap, analysts say.
Problems loom for Eurotunnel because it could not pay in cash all its debt interest payments in 2003 - paying instead in IOUs. From December 31st, 2005, Eurotunnel will have to pay all its interest payments in cash when its current creditor agreement expires.
These extra interest payments will require an extra £30 million annually, Ms Beth Fusco, credit analyst at Merrill Lynch, said.
In addition Eurotunnel will have to meet these higher debt payments from a shrinking cash flow.
At present the French and British governments guarantee the revenues Eurotunnel receives from other train operators such as Eurostar, but that subsidy stops in December 2006, and Ms Fusco estimates the lost cash flow will be around £40 million in 2007.
In addition, Eurotunnel is due to start having to pay off its £4 billion of junior debt from 2007. This will cost Eurotunnel an additional £33 million in 2007, Ms Fusco said.
Eurotunnel has never recovered from the huge start-up costs of the tunnel and has been hit hard in recent years by competition from budget airlines and price cutting by ferries.