Transport officials monitoring financial state of GNER parent

Department of Transport officials are understood to be monitoring the financial position of Sea Containers, the New York-listed owner of the UK rail company GNER, in case they have to step in to safeguard its Inter-City services on the East Coast main line.

Shares in GNER's parent company fell 38 per cent last Friday after the company announced it was in breach of its banking covenants following a $500m (£290m) write-down in the value of Sea Containers' ferries business. The shares fell a further 17 per cent in New York yesterday.

The financial difficulties of Sea Containers have cast a shadow over GNER's 10-year franchise to run services between London King's Cross and Scotland on the East Coast line, one of the country's Blue Riband routes. GNER paid £1.3bn for the new franchise last year.

It had also raised question marks over the company's likelihood of winning any further UK rail franchises. GNER is one of the bidders for South West Trains, the country's biggest commuter network. Last year it bid unsuccessfully for the new Integrated Kent franchise, which will operate high-speed commuter services on the Channel Tunnel Rail Link.

A GNER spokesman insisted yesterday the travails of its parent company would have no impact on the UK rail business, which was ring-fenced financially from Sea Containers. He said GNER had separate banking facilities from those of Sea Containers and none of the breaches of banking covenants by its parent company affected GNER or the performance bond it had put up in respect of the East Coast main line. He also rejected suggestions GNER's bid for South West Trains would be affected.

A spokeswoman for Sea Containers also said the breach of banking covenants, which relate to the net worth of the company, did not have any impact on GNER. She could not comment on what the position of GNER might be if the parent company was forced into bankruptcy but stressed Sea Containers was not planning for that eventuality.

The warning from the parent company on Friday followed the announcement earlier in the week that its long-standing chairman James Sherwood, 72, is retiring on grounds of age and health. GNER suffered another blow last week after the Rail Regulator rejected its application to increase services on the line, jeopardising the economics of the franchise.

A spokesman for the UK Department of Transport refused to comment on the financial position of GNER or Sea Containers. But he said: "Suffice to say, there are things in the franchise agreement and the legislation to ensure that whatever happens there is no risk to rail services."