GNER parent warns of banking breach
Financial Times: March 25 2006
By Robert Wright,Transport Correspondent
The parent company of GNER, one of Britain's highest-profile train operators, warned yesterday it was in breach of some of its banking agreements, only a year after it won a new franchise and promised to pay the government £1.3bn over 10 years.
Sea Containers - which has its headquarters in London, is registered in Bermuda and listed on the New York Stock Exchange - said it was in discussions with its bankers about changing or waiving the covenants. They were breached after the company was forced to take $500m (£288m) of asset write-downs against its results for the last quarter of 2005, reducing the company's net worth to below the required level.
The problems have prevented Sea Containers from filing a key form outlining its annual results with the US Securities and Exchange Commission.
Yesterday's announcement came after James Sherwood, 72, Sea Containers' founder, unexpectedly announced he had step-ped down as chairman the previous day. On Thursday, the Office of Rail Regulation announced it was allowing a commercial competitor to GNER to enter the market on its East Coast Main Line route. The decision takes up track capacity that GNER had hoped to use to launch extra services.
Also on Thursday, Moody's announced it was putting Sea Containers' $465m of debt on re-view for downgrade because it was concerned the company could not repay $263m in debt due to mature this year without a successful sale of its Silja Line Baltic ferries business.
Sea Containers said yesterday it expected to sell Silja Line in the second quarter of this year. It would also sell other ferries it had left out of Silja Line, which has been on sale since November.
Managers stressed Sea Containers had cash from the sale of its 25 per cent stake in Orient Express Hotels last year - although it restated the gain from the sale down to $30.8m from $41.1m.
However, they said that even before Thursday's decision by the rail regulator, GNER's business was less healthy than anticipated when the company won the 10-year franchise by offering a record payment to government last March. "Some of the sales growth assumptions made at the time of the bid appear to be challenging," said Robert MacKenzie, president and chief executive.
Managers also admitted Sea Containers' English Channel Hoverspeed fast ferries business had been put into insolvent liquidation. Sea Containers' A shares fell $2.65, or 22 per cent, in New York to $9.41.