Sea Containers poised to enter Chapter 11

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The Independent Online

The parent company of GNER, the operator of one of the country's prestige inter-city rail lines, is to file for Chapter 11 bankruptcy protection after admitting it will not be able to pay back a loan which falls due this weekend.

Sea Containers, the Bermuda-registered and New York-listed owner of GNER, said debt restructuring talks with creditors would not be completed before the $115m (£62m) bond becomes due for repayment on Sunday.

In that event, the company will have little option but to file for Chapter 11 to protect itself and other creditors from potential action by bondholders to push it into insolvency.

A spokeswoman for Sea Containers declined to say whether the company would file for protection from creditors.

However, she acknowledged that the debt talks would not be "done and dusted" by Sunday.

"We have always said Chapter 11 is an option," she added. "If we felt exposed to an individual creditor it would be a preventative measure. We are keen for the financial restructuring to continue in an orderly manner."

She insisted that filing for Chapter 11 would have no effect whatsoever on the operation of GNER's east coast mainline services from London or the various guarantees and credit facilities that Sea Containers had given GNER in relation to the franchise.

Sea Containers has provided its rail subsidiary with a £15.3m performance bond, which rises to £38.7m next May.

It has also put up a £30m stand-by credit facility and a £10m overdraft facility, neither of which have been drawn on.

Sea Containers has slashed its debts by more than a half to $610m by selling off its Baltic ferry operations. But it is running low on cash and is suffering heavy losses on GNER after over-bidding for a new, 10-year east coast franchise.

GNER agreed to pay the Government £1.3bn in March last year but in the first 14 months of the franchise, revenues fell short by £33m after traffic levels undershot the company's forecasts by a big margin. It was also saddled with £11m more in electricity charges than it had budgeted for.

GNER is now attempting to use the force majeure clause in its contract to get some money back from the Government.