Sea Containers subsidiary enters into U.K. management agreement that replaces franchise agreement

By Jennifer Lanning Drey

Portland, Ore., Dec. 15 - Sea Containers Ltd.'s rail subsidiary Great North Eastern Railway (GNER) has entered into a management agreement with the United Kingdom's Department for Transport under which it will operate services on the InterCity East Coast Mainline, according to a company news release.

The agreement replaces the previous franchise agreement and is expected to run for a period of up to 15 months, according to the release.

Under the terms of the agreement, the key financial rewards and risks of the franchise agreement will pass to the Department for Transport and GNER will earn an incentive fee based on revenue and cost performance. Sea Containers will continue to guarantee a performance bond at a reduced amount.

The company would have preferred to renegotiate the franchise agreement; however, that was not a possibility, and therefore, the management agreement is a "sensible solution for all parties," Bob Mackenzie, chief executive officer of Sea Containers and chairman of GNER, said in the release.

"While we are not in breach of the current franchise agreement, GNER will not be able to meet the significant increase in franchise premium obligations due from May 2007," he said.

Mackenzie also said in the release that the agreement limits the exposure for Sea Containers, which is important in the company's financial restructuring process.

"Our original bid was bullish, but we were knocked sideways by the July 2005 bombings, the hike in electricity prices and regulatory approval for Grand Central, which will compete for our passengers calling at our stations on the same line but will not have the same charges imposed on them," Mackenzie said in the release.

Sea Containers, a Hamilton, Bermuda-based provider of passenger and freight transport and marine container leasing, filed for bankruptcy on Oct. 15 in the U.S. Bankruptcy Court for the District of Delaware. Its Chapter 11 case number is 06-11156.

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