May 9, 2017 / 11:09 AM / in 7 months

Eurotunnel hopes investors get onboard with refi

LONDON, May 9 (IFR) - Eurotunnel is attempting to reduce its debt servicing costs by taking advantage of favourable market conditions, announcing plans to refinance the floating rate portion of its securitised debt pile.

Groupe Eurotunnel, the concessionaire of the Channel Tunnel, mandated Deutsche Bank and Goldman Sachs to arrange pan-European investor meetings from May 11 to 16, with pricing expected thereafter.

The company undertook a whole business securitisation in 2007 just as the financial crisis took hold, a £2.84bn long-term debt structure from Channel Link Enterprises Finance that it could pay off over the life of its concession to operate the link.

The refinancing has been several years in the making.

“Eurotunnel have tried to get this deal done recently, but couldn’t get it away I heard ... let’s see how it works out,” an investor said on Tuesday.

Eurotunnel said in December 2015 that it had removed various monoline wraps, part of the original structure, to make a refinancing of its floating rate debt possible.

The issuer hit the road last spring to raise its profile among investors, though the Brexit vote delayed its market comeback. The conclusion of the French presidential election has now cleared the path.

The 2007 issue was made up of £1.67bn and €2.12bn of fixed, floating and index-linked bonds, with final maturities ranging from 35 to 43-years.

Eurotunnel is now lining up a multi-tranche offering.

It plans to refinance the Tranche C debt with three tranches of fixed debt with expected maturities of 5 and 10-years (for €953m in aggregate) and of 12-years (for £350m), which will revert to floating until their final maturity in 2050.

It will also require the partial unwind of the interest rate swaps put in place in 2007, the cost of which will be funded by new 33-year fixed rate debt in sterling and euros.

The amount of the consolidated new tranche C debt is expected to be close to €2bn.

Eurotunnel said it expects this to result in a very significant reduction in the average cost of its debt for at least the next five years, the tranche C having an effective interest rate of 8.39%.

The unique nature of the Channel Tunnel limits the pool of comparables, particularly in euros. French toll roads are one contender, but Eurotunnel would likely come wider. Heathrow airport offers one of the best comps in sterling. (Reporting by Alice Gledhill; editing by Alex Chambers)

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