Essay about Eurotunnel

1279 Words May 30th, 2013 6 Pages
Case Study IV: Group Eurotunnel S.A. (A)

The first restructuring 1995-1998 The aim of the 95/98 restructuring was to adjust debt levels and terms so that interest expenses could be paid and debts serviced, even considering Eurotunnel’s (ET’s) - compared to budgeted forecasts - higher construction cost, delayed opening, and worse than expected post-construction financial performance. Revenue kept on decreasing in 99/00 (economic growth slowed, decreased tourism, traffic stoppages, telecom cables sales dropped), and costs increased (security). While ET still could service interest payments to creditors due to “stabilization facility’”, the company carried a net loss of £-124 M in 2000, and the restructuring was evidently not sufficient
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1995). This had partly changed to 05/06, when the creditors and bondholders found themselves in a worse situation, with the prime target to limit the write-down of debt to reasonable levels. The bondholders were more organized (ARCO) in 05/06 – and could forcefully oppose the write-downs and its implied enterprise valuation. Constrains faced where government intervention such as the “procedure d’alerte”, threatening of liquidation in 95/98. Government influence was even more pronounced in 05/06 due to increased risk of bankruptcy, which moves the process from a private settlement to court (Gilson (1991)). However, under certain laws – as the American – a court process could be more efficient (Gilson (2012)). The shareholders were mainly, and vividly, concerned about the dilution of the equity stock following the issuance of new shares to decrease debt in 95/98. This was true in 05/06 too. In the latter case they were more organized and also had management sympathy, i.e. Gounon “…dilution is not a solution…”.Nevertheless, a necessary consequence of the 05/06 restructuring was some dilution, but due to strength of shareholders and Gounon it was limited and less than in peer restructurings at the time. The goals of management were both of personal and for the firm. ET has a history of change in management (exhibit 5,

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