Railtrack investors' £10bn rescue

RAILTRACK stakeholders were today formally presented with a £10bn rescue package, backed by the Government and including a bailout for shareholders and bondholders. The deal has been put together by Network Rail, the Company Limited by Guarantee backed by Transport Secretary Stephen Byers and headed by Ian McAllister, the former boss of Ford in Britain.

Shareholders will receive around 250p a share, or around £1.3bn, made up of £200m from Network Rail backed by a further £300m grant from the Government. The rest will come from cash and the sale of assets left in the non-regulated rump company Railtrack Group, including a £400m option to take over the running of the 80% finished Channel Tunnel Rail Link. Bondholders, owed £1.6bn, will be fully repaid in cash.

First indications are that equity and debt investors will back the plan.

Network Rail will borrow £9bn in the form of a bridging loan from a syndicate of City banks. In addition to the 'early exit' payment to shareholders - who must agree to the deal to take the network operator out of administration as early as July - the money will be used to pay back or refinance £6.5bn of debt, £2.5bn of which is in the form of direct Government loans since Railtrack Plc was put into administration nearly six months ago.

The £9bn loan will then be refinanced by City bonds securitised on future revenue from the heavily subsidised train operating companies.

Adrian Montague, the Government's Private Finance Initiative specialist who is deputy chairman of Network Rail, said the bridging loan is not guaranteed by Government or its Strategic Rail Authority for 'technical, financial and legal' reasons. He added: 'There is a support package - not a guarantee - from the SRA which backstops the refinancing.'

David Rough, chairman of the City's influential Institutional Shareholders' Committee, said: 'There now appears a good chance of securing an end to the process of administration while providing some prospect of a fair return of value for investors.'

Railtrack administrator Ernst & Young expressed satisfaction, but said it was still prepared to receive bids.