Despite recent speculation linking it with a massive E10 billion ($8.5 billion) securitization, Railtrack, operator of the U.K. rail infrastructure, insists that it has yet to decide on its method of securing future financing. But, if it should decide to press forward with a transaction, the Office of the Rail Regulator will not stand in the way.

Railtrack's official line on a bond issue is guarded. "We are looking at different financing initiatives," an official for the company said. "Securitization may be one of them, but we haven't got any definite plans." Market speculation suggests that a deal is at a more advanced stage than that, with UBS Warburg and Morgan Stanley Dean Witter just two names that have been mentioned as potential arrangers.

What is certain, is that Railtrack is going to have to be more self-financing than it has previously needed to be. Since privatization in 1996, it has received declining government support and the introduction of the rail regulator has meant that it is no longer able to independently set access charges for use of its network to rail companies, its major means of raising finance. In November, the regulator will set the access charge and announce the level of government support for the next five years.

When those figures are announced, it should become clearer how the company intends to fund itself. It has already stated that it will need GBP18 billion ($25.2 billion) over the next six years to fund maintenance and investment programs and says on its web site that "the scale of the funding requirement may require recourse to innovative methods of financing."

In a statement, the company hints that some form of bond issue is a very real possibility if the regulators do not hinder it. "The regulatory and political stance will need to give the financial markets the confidence that Railtrack will not continue to be subject to a disproportionate level of regulatory and political intervention."

An official at the Office of the Rail Regulator accepted the point, but said it was not within the regulator's powers to influence how the money is raised. "We take the position that it is important for Railtrack to be able to finance its activities and we welcome appropriate plans that they have for doing so," he said. "But, it is not our task to comment on exactly what methods they have for raising finance, but clearly [securitization] is the sort of thing they should be looking at."

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