Sea Containers, the stricken owner of rail company GNER, could file for Chapter 11 bankruptcy protection in the US as soon as tomorrow after crisis talks stalled over its pension deficit.
The impetus for the filing would be a $115m (£62m) bond payment due today. "They aren't going to make the payment," said a source. "They will file rather than let somebody do it for them."
The company, led by Bob MacKenzie, has been holding marathon discussions over the weekend. "We have every intention of continuing to trade," said a spokeswoman. "We are in survival mode, but we see a way through this."
The company's pension deficit, however, is likely to dash any attempted deal to avert bankruptcy, sources said. Bankers Houlihan Lokey Howard & Zukin and law firm Bingham McCutchen hosted a bondholder conference call on Friday to discuss the pension deficit, which as of December last year stood at $88m. Creditors were told on the call that the company's liability could double to at least $175m if the UK pension regulator decided to wind up the pension fund.
If it does, the regulator could then invoke a clause of the Pensions Act under which Sea Containers would have to find an outside insurance company to buy the liabilities. As an effective fire sale, that would push the price up, so causing the deficit to rocket.
Houlihan Lokey and Bingham McCutchen are leading an ad hoc group of creditors but have not been hired yet. Rather, they are angling to represent a creditors' committee if one is formed. So far, bondholders have been hoping for a deal to avoid a court restructuring.
Sources said there was still a chance that such major American hedge fund investors as Appaloosa Management, Newcastle Partners or Reed Conner & Birdwell could yet inject cash in exchange for a large stake in the business.