Rail puts on new face for bankers

By PAM GRAHAM

Tranz Rail's share price plunged 52 per cent to a record low of 30c yesterday as the company moved to replace its chief financial officer, Wayne Collins, with a director, John Loughlin.

Loughlin's strong relationship with banks would help the company resolve its current difficulties, said managing director Michael Beard.

Yesterday the Herald reported that affidavits to a High Court case between the company and credit rating company Standard & Poor's suggested Tranz Rail would require further financial support by the end of June if it did not sell some assets.

The company is reducing a bank debt facility from $83 million to $55 million and its bankers have agreed to reschedule a final payment of $14 million, due on April 1, over three months. It had $11.3 million of cash at the end of last month.

The paydown of the facility was part of a restructuring last December that was agreed to only after a public spat between Collins and Citigroup.

Collins went on to argue with the Wellington Regional Council about the sale process for the Wellington rail passenger businesses and he also went to court to try to prevent Standard & Poor's from making public a credit rating downgrade for the company.

"John Loughlin has a long and constructive association with the banking industry and is widely respected in financial circles," Beard said yesterday.

Collins would stay on "and focus on reaching finality on major transaction projects".

"In the medium term the company will be appointing a new financial officer," said Beard.

Loughlin is a former chief executive of Richmond and is a director of Zespri Group, Port of Napier, Centralines and Prism Group as well as Tranz Rail.

One of his first acts as interim Tranz Rail chief financial officer was to respond to a query from the Stock Exchange about the stock price fall.

He referred the exchange to his appointment and media articles. The shares closed at 35c.

An affidavit from Paul Stephen of S&P said Tranz Rail would have $1.3 million of cash and fully drawn bank facilities at the end of June even if it sold $10.7 million of railcars to Carter Holt Harvey.

Paul Harper of Carter Holt said yesterday that his company would not be buying the assets.

"We've been discussing it as a possibility for some time but it doesn't meet our capital hurdles," he said.

Carter Holt has been using a "hook and tow" system from the central North Island to the Port of Tauranga, paying a lump sum per train rather than a rate per tonne and taking on the risk of trying to fill wagons.

Harper said buying wagons was an option but "we had never committed to it and we won't be".

Collins went to the High Court to stop S&P releasing a credit rating of the company, arguing Tranz Rail had terminated the contract with S&P and the information provided to it had been confidential.

The case was settled before judgment and S&P went ahead and downgraded the company five notches to B minus.

Affidavits to the court showed that S&P had been considering a downgrade of only three notches before it saw the cashflow forecasts on April 3.

If it were not for the banks being currently well disposed to Tranz Rail, S&P would have downgraded the company to CCC.

Tranz Rail has a For Sale sign on a lot of its assets but Collins said in his affidavit that it would be seen as a forced seller after the downgrade.

Its business under the TranzLink brand and its Wellington passenger business are up for sale, as well as rolling stock and the Wellington Railway Station. It is also preparing a "concrete scenario" by the middle of next month for the Government to consider that could lead to a Government buyback of the rail network or subsidies for uneconomic lines.

Beard has said the aim was to complete that process by the middle of the year.

A spokeswoman for Finance Minister Michael Cullen said the Government was monitoring the situation but it regarded Tranz Rail as a private company.

Tranz Rail is forecasting earnings before interest and tax of $47 million this year and has said that could rise to $60 million if assets were sold.

Collins has said the company had $30 million sitting in a foreign bank account acting as extra security on a lease for the Aratere ferry and had been looking to the US private placement market to refinance it.

The court heard that would be unlikely after the rating downgrade.