Eurotunnel, heavily indebted Channel tunnel operator, will go bust in January 2007 if a deal can't be reached with creditors, the company warned last night.

A spokesman said: 'A year from now we will have to start paying back a significant part of our debt - at that point, we will be insolvent.'

The company's comments come as Eurotunnel chairman Jacques Gounon is trying to prevent a crisis by negotiating an outline agreement on a debt restructuring deal with creditors who are owed £6.4bn.

In the summer, Gounon was granted a waiver by lenders to enable him to enter discussions about a rescue package without breaching the terms of covenants that prevent talks taking place without the banks' agreement.

But Eurotunnel's senior spokesman, John Keefe, said: 'We will not ask for another waiver unless we feel that we have made substantial progress. Otherwise, a further waiver is pointless.'

Gounon has told Eurotunnel's predominantly French investors that he is determined to force the banks to forgive debt rather than agree to a restructuring that could involve a dilution of their shareholdings. But the creditors have resisted his demands and are insisting that debts can only be reduced if shareholders give up some or most of their shares in return for a debt write-off of around £4bn.

Eurotunnel makes profits at the operating level, and last year it saw the first increase in revenues from its car and and truck shuttle services since 2002. But the original traffic projections for the tunnel proved wildly optimistic. The firm is also hurt by massive interest payments; and its finances will deteriorate further in November when rail freight operators will no longer be required to pay minimum usage charges.