By Nick Stride
Friday 22nd November 2002 |
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In an unusual move the company said it had failed to secure a renegotiated agreement on a $250 million cash advance facility with Citibank, Westpac, BNZ and National Bank that expired on October 15.
A Tranz Rail statement put the blame on Citibank, which has refused to approve the new banking package unless the company breaks a $US88 million hedge covering payments on its lease of the Aratere ferry. Citibank fired back, disclosing what Tranz Rail has not that the bank provided the swap as well as lending Tranz Rail money.
Citibank chief executive Andrew Au said the swap was in-the-money for Tranz Rail. The bank had told Tranz Rail all through refinancing negotiations that closing out the swap, and adopting an alternative arrangement proposed by Citibank, had been an integral part of the discussions. The agreement stipulated that if market rates moved against Tranz Rail it would have to put up collateral.
Tranz Rail had initially agreed to honour this commitment but then told Citibank it was unable to do so because the other banks didn't agree with the collateral security agreement.
Mr Au said Citibank had a contractual right to require Tranz Rail to close and had insisted all along that it would do so.
"By closing out the swap we'd actually be giving money to Tranz Rail," Mr Au said. "But uncertainty about the way markets will move causes banks, ourselves and others, to take steps to mitigate the risk." Banking sources saw Tranz Rail's unusual step of naming Citibank as an attempt to gain leverage in negotiations by setting the bank up as the villain of the piece should the financing stand-off precipitate a financial crisis.
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