IN THE LAST five years there has been an astonishing increase in the amount of leased rolling stock running on Europe’s railways. Much of the impetus has come from the US, where cross-border leasing brings substantial tax avoidance benefits. Michael Kershaw of HSBC International told a Frankfurt conference on Commercialising the Railways that rolling stock had absorbed 55% of US cross-border leasing deals totalling US$15bn in the last five years, and 60% were for European assets. Even more extraordinary, he expected the total for 1996 to reach US$16bn, doubling the US$8bn recorded in 1995.

Surprisingly, perhaps, there is no international convention governing this leasing activity. Nor is there any recognised registry which can be consulted by lenders to determine who has a financial interest in a particular wagon or carriage. Thus a wagon might be seized in Frankfurt by US lessors to a bankrupt French operator, only to discover that it had been sold outright to a German company a month earlier. In any event, how does a lessor discover where his wagon is, let alone recover it, without the co-operation of the railway upon whose track it is resting?

Howard Rosen, a solicitor based (appropriately) in Zug who specialises in rolling stock leasing, has been campaigning for implementation of a draft Unidroit convention that would provide some comfort to lessors of rolling stock circulating within Europe. This does not automatically create a registry of financial interests which could be consulted by lessors or purchasers - such already exist on a national basis for aircraft and ships. But it would provide a legal platform from which to challenge court judgements based on national bankruptcy laws, which vary widely in their effect and are often concerned to protect the viability of local firms. Rosen wants the rolling stock registry to be worldwide in scope, but continental registers are perhaps more likely given the geography of rail networks.

As Rosen pointed out, rolling stock and satellites are the exception in being without a means of registering ownership or a security interest. In Europe, this is because the vast majority of lending has been to state railways backed by government guarantees. This is changing rapidly, and not only in Britain where the vast majority of rolling stock is now privately owned. Within 10 years, government guarantees are more likely to be the exception than the rule, and there will be many new players in the market. Without better protection for their investments, some are likely to get their fingers burned. o

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