Euro Disney faces rash of lawsuits

BONDHOLDERS in Euro Disney, the troubled theme park near Paris, are threatening to sue S G Warburg Securities for hundreds of millions of dollars over a mistake in the English translation of the bond prospectus.

The prospect of litigation threatens to upset delicate negotiations with bank lenders to Euro Disney over a rescue package now thought to be close to fruition.

In addition to S G Warburg Securities, the stockbroking arm of the UK's leading merchant bank, the bondholders were considering whether to sue the 15 other banks that underwrote a multi-million-dollar bond issue three years ago.

KPMG Peat Marwick, the accountants, have recommended that Euro Disney needs Fr13bn ( pounds 1.5bn) to survive. Walt Disney, the park's parent, may be prepared to contribute about half of that through a rights issue and by surrendering some revenue from admission fees and food and drink sales.

The rest would come from other shareholders subscribing to a bank-supported rights issue, and the banks exchanging some of their debt for equity - effectively deferring their repayment. Bondholders' interests would be diluted.

Meanwhile Klesch & Co, a firm that trades bonds, plans to publish a research note next week asserting that Euro Disney underwriters are liable for a mistake in the English translation of the bond prospectus.

Aggressive US arbitrageurs have been buying Euro Disney bonds for weeks in the hope of extracting better terms from the restructuring than the bond market has been expecting.

Bondholders can claim only if they are asked to take less favourable terms on their bonds than they were promised in the original prospectus, when the proposals for Euro Disney's financial restructuring are put to them. This seems likely, given the parlous state of the project's finances.

The English translation of the 1991 prospectus for the 6.75 per cent convertible bonds says approval is required from all bondholders for the terms to be changed, while the French document says only that French law applies. According to Klesch & Co, French law would require a simple majority.

'From our experience the mistake in the prospectus about the unanimous vote clearly can be misleading, and if investors relied on that language in purchasing bonds in spite of the disclaimer that French law applies, we think it is going to be a very difficult case for Warburg to argue to the contrary,' said Gary Klesch, the aggressive head of Klesch & Co.

'If an investor buys and does not speak French the disclaimer does not carry much weight. You cannot disclaim away responsibility.' Mr Klesch added that the underwriters might in turn sue Warburg as the agent bank. Warburg refused to comment.