International Business : Options Limited as Eurotunnel Seeks to Ease $12.4-Billion Debt : Transportation: Major surgery needed, many agree. Overhaul of financing likely.

For centuries, one of the biggest worries about digging a tunnel between France and Britain must have been whether the structure would crumble under the sheer weight of the water above.

But nearly two centuries after French Emperor Napoleon I first considered the idea, a sub-sea rail tunnel is down and running. The question now is: Will the firm that owns the tunnel buckle under the massive weight of debt it took on to build it?

The general belief is that Eurotunnel, owner and operator of this marvel of modern engineering, is likely to survive, because the banks that pumped money into the high-risk project are in so deep they can do little else than stick with it.

Eurotunnel stock has been generally tumbling since the announcement Sept. 14 that it was freezing interest payments on $12.4 billion of debt to its banks. The stock recovered slightly Wednesday in Paris, closing at $1.73 a share.

The stock had traded as high as $10.10 in January, 1994, when the Channel Tunnel opened, linking France and Britain.

“Investors are very scared, and they have less and less confidence,” a trader said.

Eurotunnel said it was freezing payment of nearly $3.1 million a day in interest on the debt while it looks for ways to cut the burden that is choking a business that is otherwise a guaranteed commercial success.

That move in itself is seen as highlighting just who is leading the game.

“Eurotunnel has got them over a barrel,” said one Eurotunnel watcher in the London investment community.

“Too much has gone into it already. The banks could look for someone else to run it who would want to take it on. The time will come when it will be a very successful operation.”

French and Japanese banks will be hardest hit by Eurotunnel’s decision, Standard & Poor’s said Wednesday. French banks account for about 20% of Eurotunnel’s pool of creditor banks, while Japanese banks account for between 20% and 25%, S&P; said.

Still, there will be a limited impact on individual banks’ credit-worthiness, the credit-rating firm said. The risk to any individual bank should not exceed 5% of the total credit, or $700 million.

S&P; listed French banks Banque Nationale de Paris, Credit Lyonnais, Banque Indosuez and the Caisse Nationale du Credit Agricole as the French lending institutions most at stake in the rescheduling of Eurotunnel’s junior bank debt of $12.4 billion.

Japanese banks, which have spread out their debt burden more evenly in various international markets, will have limited losses from the Eurotunnel operation, S&P; added.

What is far less certain is whether the shareholders who bought into Eurotunnel, the majority of them French, will get any return on their investment apart from the right to free travel on le Shuttle trains that ply the crossing from the French port of Calais to Dover in southeast England.

Nationalization of Eurotunnel is simply not an option.

The governments on both sides of the crossing are precluded from doing so by the tunnel treaty, quite apart from the fact that neither government appears politically or ideologically inclined to contemplate such action.

The company itself has ruled out bankruptcy and the banks are sure to agree, given the hit they would take on the debt.

The third and, for many, the only option is a drastic overhaul of the company’s financing, cutting debt to a level where Eurotunnel is making enough money to see its way through.

After its first full summer of operation, the shuttle freight service has half of the Dover-Calais market and trains are carrying about a third of tourist traffic.

Revenues, however, are suffering--and are likely to until rival ferries on the surface call a truce in a price war currently raging.

Eurotunnel co-Chairman Sir Alastair Morton says restructuring will be painful for both shareholders and the banks.

How it will happen is where opinions differ and is what the banks and Eurotunnel now have to thrash out.

The most likely way out, analysts agree, could involve an issue of shares and some form of debt-for-equity swap with the banks.

There is general agreement that serious surgery is needed, which means something drastic enough to cut debt by up to half.