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Monday, 8 October, 2001, 16:40 GMT 17:40 UK
Railtrack creditors 'will not lose out'
Relaying track near Hatfield
Railtrack has debts of about 3.3bn
UK banks are unlikely to be forced to write off loans to Railtrack following the company's dramatic collapse, according to US investment bank Merrill Lynch.

Merrill Lynch says individual UK banks face exposure of up to 250m from the track and signal company's failure.

In the worst case, Merrill Lynch banking analyst John-Paul Crutchley said, this could add up to a 5% write-down on Barclays 2001 results, although he rated this outcome as unlikely.

It was not in the government's interest to alienate the banks as it attempts to set up a replacement company for the crippled track operator, Mr Crutchley said.

Railtrack is estimated to have total debts of more than 3.1bn, much of it in the form of short-term loans from British banks.

Government intervention

The company's short term debts add up to a total to 869m - including about 800m in bank loans, Mr Crutchley said.

Long-term debt accounts for 3.03bn - including European Investment Bank loans of 1.1bn.

There is also a Channel Tunnel liability of 793m.

Mr Crutchley said Railtrack's administrator, Ernst & Young, would cover all debt obligations for the next 45 days, while the government has indicated that creditors will be supported.

Maximum exposure

Barclays has led a number of bond issues for Railtrack and could therefore be expected to be involved in any lending, he said.

HSBC has also been cited as a key lender.

The government plans to put forward proposals to replace Railtrack with a private company without shareholders - a private sector "company limited by guarantee" that would invest any operating surpluses directly into the rail network.

Given the new company will not have access to share markets but will have a need for capital to fund future development, it will need the support of the banks and debt capital markets, argues Mr Crutchley.

"We therefore expect all debt to continue to be serviced and consider the likelihood of substantial provisioning to be extremely low," he said.

"The message of this restructuring appears to be to eliminate the conflicts arising from the shareholder focused/profit maximising status of the current company rather than disadvantaging creditors outright."

Shares in Barclays closed down 25p at 1940p on Monday, with HSBC stock ending 9p lower at 738p.

Railtrack shares, suspended at 280p before the opening of markets on Monday, were axed from FTSE indexes at 0p later in the day.

See also:

08 Oct 01 | Business
Angry Railtrack chief quits
08 Oct 01 | Business
Rail users promised 'fresh start'
08 Oct 01 | Business
Railtrack in administration
07 Oct 01 | Business
Railtrack privatisation 'flawed'
05 Aug 01 | Business
Railtrack may axe managers
02 Aug 01 | Business
Railtrack operations chief axed
23 Jul 01 | Business
Railtrack funding under threat
24 May 01 | Business
Railtrack reports massive loss
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