REFINANCING NEXT ON AGENDA FOR EUROTUNNEL AND BANKERS

REFINANCING NEXT ON AGENDA FOR EUROTUNNEL AND BANKERS

Eurotunnel PLC/SA's creditor banks, told they would get no interest payments for up to 18 months, are starting talks this week to refinance the Anglo- French channel tunnel operator, bank sources said. The announcement by Eurotunnel on Thursday that it was suspending interest payments on its UK8 billion ($12.4 billion) debt for up to 18 months had been generally expected by the banks.

''Eurotunnel had said very publicly, 'Guys, we're going to run out of money at the end of October,' " one bank source said."I know for a fact that the banks weren't surprised," a second bank source, who requested anonymity, told Reuters.

But the timing of the announcement caught off guard some of the smaller lenders, who had expected to receive interest payments for another six weeks.

Eurotunnel decided that was not possible once it started initial talks with some of the biggest lenders. The sources said Eurotunnel felt it was obliged by stock exchange rules to make an announcement, the sources said.

They said tough negotiations would now begin, with some estimating the talks would take a year and others forecasting 18 months before the 225 banks reach formal agreement on a long-term refinancing package.

That is likely to include converting some Eurotunnel debt into equity - a move that will give banks a larger interest in the group and upset existing shareholders by diluting their stake.

The package is also likely to include an extension of the loan-maturity period, bank sources said.

Eurotunnel Co-chairman Patrick Ponsolle told reporters Thursday an outline agreement on the group's debt position could be reached in six months.

The banks' interest sin the negotiations with Eurotunnel are represented by a so-called steering committee that comprises the biggest lenders.

Those include the four agent banks - Banque Nationale de Paris, Credit Lyonnais, Midland Bank, a unit of HSBC Holdings PLC, and Barclays Bank - as well as the European Investment Bank and the European Coal and Steel Community.

The EIB is the long-term financing arm of the European Union. The ECSC was one of the precursors of the European Union.

Bank sources said Friday that the EIB, National Westminster Bank, Midland, Credit Lyonnais, BNP, the ECSC, the Industrial Bank of Japan and Barclays held the largest chunks of Eurotunnel debt.

The Industrial Bank of Japan will represent the 40-odd Japanese banks that hold about a third of Eurotunnel's debt, the sources said.