Tranz Rail: 'We're not burning cash'

By PAM GRAHAM

Standard & Poor's slashed Tranz Rail's credit rating another two notches yesterday on doubts that asset sales will come quickly enough to meet lease and debt payments that the company has falling due this quarter.

But the rail operator went on the front foot by saying it was not another Air New Zealand requiring a bailout and it was planning to save $5 million a year by changing its Cook Strait fleet.

"Air New Zealand was burning cash on a daily basis. At Tranz Rail, while we're still not generating it fast enough, we're not burning it," said interim chief financial officer John Loughlin.

"What we need to do is get one or two asset sales away and turn a couple of things the right way."

Doubt about getting asset sales away led S&P to cut the company's rating from B- to CCC. The rating remains on creditwatch.

Cashflow figures supplied to S&P before Tranz Rail terminated its contract assumed a $10.7 million sale of rolling stock to Carter Holt Harvey in the June quarter.

Carter Holt has said it would not be buying the rolling stock and chief executive Peter Springford reiterated that yesterday.

Loughlin said the company had presented cashflow figures to S&P that assumed the sale to Carter Holt and ultimately it was Carter Holt's decision whether to buy.

But he said there were several ways of structuring transactions.

"We presented one transaction out of a series that could occur and we are confident that if we can't make that one stick we can make other things stick," he said.

"We have more things on the block than we need to sell and it is a case now of bringing in one or two of them," he said.

He said S&P was now relying on public information.

Even so, S&P said that Tranz Rail would have no option but to seek further support from banks by the end of June if it did not make the sale to Carter Holt or alternative sales of material magnitude.

"Although there is speculation of possible intervention and support from the New Zealand Government, the nature and period of such support would be crucial in determining the credit impact on Tranz Rail.

The CCC rating, which remains on review, is just three notches above a default rating, although companies have to miss a payment to be rated D.

Tranz Rail has terminated its contract with S&P, arguing it no longer needed a rating, but it failed to stop the credit rating company dowgrading it by five notches last week.

Court documents from the attempt to muzzle the agency said Tranz Rail would have only $1.3 million in cash at the end of June, assuming it sold the rolling stock to Carter Holt.

Tranz Rail's share price plunged to 30c last week as its liquidity situation became public. The shares closed yesterday at 46c.

The company is forecasting earnings before interest and tax of $47 million this year but its problems include high fixed costs, a lease on the Aratere ferry that requires it to keep $30 million in an overseas bank account and institutional investors losing faith, putting pressure on its share price.

Government officials met company executives last week and Tranz Rail is due to report back to them this week.

The Government does not want to bail out a private company but it has been looking for a mechanism to influence rail policy after selling Tranz Rail without a kiwi share.

Documents prepared for a meeting of Wellington Regional Council's passenger transport committee this week show a sale of the Wellington passenger business remains fraught.

The council is advising buyers not to assume a continuation of the current subsidy and that it would be looking to recoup some of the $10.4 million it contributed to refurbishing 44 Ganz Mavag wagons in future contract prices.

Only one potential buyer, Transdev, a French company that operates the Paris Metro, has talked to the council.

But Tranz Rail reached agreement on one matter, saying it was hoping to save $5 million a year by using a new vessel for freight and a Lynx-type ferry only in the summer on Cook Strait.