Sea Containers files Chapter 11 bankruptcy, misses $115 million Oct. 15 note payment

By Caroline Salls

Pittsburgh, Oct. 16 - Sea Containers Ltd. filed for Chapter 11 bankruptcy on Oct. 15 in the U.S. Bankruptcy Court for the District of Delaware in order to achieve a financial restructuring, according to a company news release.

Sea Containers' subsidiaries, Sea Containers Services Ltd. and Sea Containers Caribbean Inc., also made bankruptcy filings Sunday.

"Although we have not paid the October 15 public notes, we are optimistic about the success of our restructuring program and our ability to reach agreement with creditors," president and chief executive officer Bob Mackenzie said in the release.

"The prime reason for seeking protection is to prevent any individual creditor from taking action on its own, which would be against the interests of Sea Containers and the majority of creditors.

"Chapter 11 will allow us the flexibility and the time needed to implement our reorganization plan and to move Sea Containers onto a sustainable financial footing.

"Much has already been achieved this year to improve Sea Containers' finances, including the sale of Silja, the reduction by more than 50% of group debt and the recent refinancing of our containers."

According to the release, the company has sought Chapter 11 protection because its directors concluded that a court-supervised reorganization would better enable the companies to restructure their debt, working cooperatively with creditors to place the respective companies on a sound and sustainable financial footing.

As previously reported, on Aug. 11, the company stated that it would not pay the $115 million principal amount of the 10¾% senior notes due on Oct. 15 unless it concluded that it could pay in full the other public notes maturing in 2008, 2009 and 2012 and all other unsecured creditors, as well as retain sufficient working capital.

Since then, the company said it has outlined a restructuring proposal to the advisers representing the ad hoc committee of noteholders with the goal of restructuring the company's public notes and other unsecured financial obligations.

Sea Containers has also been in discussions with advisers to the trustees of its two principal U.K. pension schemes.

Although Sea Containers said it believes that progress has been made in these discussions, it has not been able to reach agreements with the necessary stakeholders before the Oct. 15 maturity date of the 10¾% notes, and it has decided it cannot pay the notes at maturity.

As a result, the company is in payment default.

Sea Containers' total cash on Oct. 14 was $126 million, of which about $59 million was either restricted as security for obligations to third parties or held in subsidiaries and could not be remitted back to the company for various legal, regulatory or bank covenant reasons.

The remaining free cash totals $67 million, compared with $80 million as of July 31.

Sea Containers said the main movements on free cash are the receipt of $40 million from the container refinancing and sale of containers, the repayment of $9 million in secured debt, a net $23 million to meet both the recurring and non-recurring operating needs of the business and $16 million of restructuring costs.

Debt details

According to court documents, Sea Containers has $1.673 billion in total assets and $1.582 billion in total debt, including $115 million of the 10¾% notes, $149.8 million of 7 7/8% unsecured senior notes due February 2008, $19.2 million of 12½% unsecured senior notes due December 2009 and $103 million of 10½% unsecured senior notes due May 2012.

The company's largest unsecured creditors include:

• United States Trust Co. of New York, indenture trustee, with a $149.8 million note debt claim for the 7 7/8% notes and a $115 million note debt claim for the 10¾% notes;

• The Bank of New York, indenture trustee, with a $103 million note debt claim for the 10½% notes and a $19.2 million note debt claim for the 12½% notes;

• SPCP (Silverpoint), Greenwich, Conn., with a $19.5 million contract debt claim;

• Centrabanca, Milan, Italy, with a $19.17 million guarantee claim;

• HSH Nordbank, Hamburg, Germany, with a $15.8 million guarantee claim, a $6.1 million bank loan claim and a $2.7 million bank loan claim;

• GE SeaCo SRL, Bridgetown, Barbados, West Indies, with an $11.94 million trade debt claim;

• Bank of Scotland, London, with a $2.3 million bank loan claim; and

• GE SeaCo America LLC, Charleston, S.C., with a $1.78 million trade debt claim.

Pension restructuring

In light of the deficits relating to the Sea Containers 1983 and 1990 pension schemes in the United Kingdom, Sea Containers said it has sought to ensure that the restructuring takes account of the pension liabilities.

The directors of Sea Containers Services Ltd. are in discussions with the trustees of the 1983 and 1990 schemes and the U.K. pension regulator about the future of those schemes.

Active members of the 1983 scheme were recently informed that the directors of Sea Containers Services Ltd., with the agreement of the trustees, had decided that active members should stop accruing benefits for future service, effective Sept. 30.

These employees will be given an opportunity to join the Sea Containers Group Stakeholder Pension Plan in the United Kingdom.

The company's $20 million unsecured liability owed to a shipyard payable on Sept. 30 was assigned to a financial investor and rescheduled for payment on Oct. 15 to align with the repayment date of the notes.

This unsecured liability was also not paid on Oct. 15.

The control and operations of Great North Eastern Railway (GNER) were not affected by the Chapter 11 filings, the release said.

Sea Containers is a Hamilton, Bermuda-based provider of passenger and freight transport and marine container leasing. Its Chapter 11 case number is 06-11156.

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