LONDON — The government’s plans to replace the insolvent operator of Britain’s railways were thrown into limbo on Tuesday when a group of bondholders failed to agree to waive their rights to call in Railtrack’s debts, a wire service reports.
The bulk of Railtrack’s bondholders approved a deal to give the government breathing space to set up a not-for profit replacement or find a buyer for the creaking rail network.
But holders of the last 400 million pounds of exchangeable bonds failed to give the agreement enough backing.
Bondholders had been asked to give up their rights to legal action to recover their money. In return the government would service Railtrack’s debt for three years or until a replacement firm takes on its liabilities.
Transport Secretary Stephen Byers withdrew financial backing for operator Railtrack Plc last October, pushing it into administration.
The administrators now running the company, from business services firm Ernst & Young, said it was up to Byers to decide the way forward after Tuesday’s failed vote.
“The Secretary of State needs to decide what he wants to do now,” said a spokesman for the administrators.
Transport department officials were not immediately able to comment on the next step.
Earlier, Railtrack said holders of its 300-million-pound 7-3/8 percent sterling bonds due in 2022 had accepted the deal, as had holders of its 101-million-pound 9.625 percent 2016 notes.
The administrators said last month that creditors had agreed not to call in 3.1 billion pounds of debts, including bonds, loans and other financing arrangements.
Railtrack Group Plc, parent company of the failed network operator, plans legal action against the government to claw back money for its shareholders, who include thousands of railworkers as well as some of the world’s biggest investment firms. Its shares were suspended at 280 pence, but wants 360 pence per share in compensation for its assets.
EXCHANGEABLE FALLS SHORT
Tuesday’s meetings only needed 25 percent of bondholders to attend to approve the agreements — with 75 percent of those required to vote in favour. The 3.5 percent exchangeable bonds due in 2009 only achieved 73 percent approval.
“Clearly they (convertible bond holders) are more linked into the equity story than the straight debt so they are probably worried that if they accept the standstill now there probably will be negative upside if the shareholders get a deal,” said one London-based credit analyst.
“Everyone (else) has signed up to the standstill now with the exception of the convertible bond, so technically the convertible bonds are out on a limb and are ‘taking their chance’ against the government,” the analyst added.
One trader at a British bank said those investors that had signed the standstill had committed to holding Railtrack over the long term.
The bonds were unchanged in late dealings on Tuesday afternoon.
“What there is left to trade may be slightly better bid on Wednesday as the market digests the move, however,” he added.
Now that almost all the bondholders have agreed not to call in the debts, analysts expect pressure to grow on the government to reveal the structure of Railtrack’s successor or replacement.
Approval of the standstill agreement by all bondholders had been expected to bring closer restoration of Railtrack’s debt rating to the coveted investment grade, which it lost after it was placed in administration in October.
But analysts said the government would have to provide more details of the financing, operating, and regulatory issues of Railtrack’s successor to determine its future credit quality.