1.21 In February 1997 LCR informed the Department that to convince investors of the soundness of the Eurostar UK business following the Channel Tunnel fire there was a need to collect more Eurostar UK revenue data. As a result, LCR had to postpone the flotation from October 1997 to March 1998. This meant that LCR would exhaust its stage 1 finances in January 1998. To bridge this funding gap, LCR proposed to raise finance by selling the eleven Eurostar train sets it still owned and leasing them back from the new owner. LCR's access to these funds was, however, prevented under the contract until after completion of the second stage financing. In May 1997 LCR approached the Department to obtain a relaxation of the contract.
1.22 The request effectively asked the Department to increase its financial risk in the project by £230 million. If Eurostar UK reverted to the public sector, the Department would become liable for the leasing payments. The Department considered that it was the only party being asked to increase its financial exposure, as LCR had not proposed either raising further debt or obtaining a further injection of equity from its shareholders. In July 1997, Ministers met LCR and suggested that LCR should seek additional financial support from its shareholders and lenders. LCR's response was that its shareholders were not prepared to increase their investment and its banks would only lend more if the Government provided additional financial support.
1.23 In August 1997 the Department informed LCR of the detailed terms on which it would be granted access to the leasing proceeds. The Department considered that LCR would find the terms so unfavourable that it would be compelled to go back to its shareholders.