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Project Cost and Funding
The overall project cost of Eurotunnel was 10,116 million euros (Goldsmith & Boeuf, 2019). Out of 10 billion, roughly 80% were financed by debt and 20% by equity , which makes 8 billion euros for debt and 2 billion euros for equity (Shueler, 2007). Eurotunnel had many sources of funding, including the French and British governments, bank syndication involving at least 220 banks, including the European Investment Bank, and debt (Goldsmith & Boeuf, 2019).
Demand and Supply Risks
The project did not have demand risks, as the passage between mainland Europe and the British isles was one of the most needed infrastructure projects of the twentieth century (Goldsmith & Boeuf, 2019). The construction of the project depended on the work of tunnel boring machines. However, the existing equipment was outdated and not sufficient to drill through the chalk formations (Genus, 2019). Therefore, the supply risk was represented by the dependence on modern tunnel boring machines.
Problems and Debt Restructuring
Eurotunnel was a high-risk project from the beginning, demanding an estimated amount of four billion euros (Goldsmith & Boeuf, 2019). However, seismic data showed that the available equipment was not adequate to drill through chalk formation. As a result, the expenditures increased, forcing the companies and banks to invest more funds. As a result, the risk increased exponentially compared to the terms the shareholders agreed to at the beginning (Grant, 1997). Furthermore, Eurotunnel suspended interest payments to the shareholder in 1995.
The solution was found in debt restructuring. A syndicate of 220 banks agreed to the new terms of debt based on the growing traffic through the already working channel (Grant, 1997). Essentially, the new debt scheme meant that Eurotunnel got seven years, during which it would be forced to pay the interest at a rate below the market rates (Grant, 1997). Debt restructuring allowed Eurotunnel to continue maintaining the channel and repay its debt to the shareholders.
References
Genus, A. (1997). Managing large-scale technology and inter-organizational relations: The case of the Channel Tunnel. Research Policy, 26(2), 169-189.
Goldsmith, H., & Boeuf, P. (2019). Digging beneath the iron triangle: The Chunnel with 2020 hindsight. Journal of Mega Infrastructure & Sustainable Development, 1(1), 79-93.
Grant, M. (1997). Financing Eurotunnel. Japan Railway & Transport Review. 46-52.
Schueler, A. (2007). Valuation of companies in need for financial restructuring: The case of Eurotunnel. University of the German Federal Armed Forces. 1-18.
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