Five banks have filed a claim with the London Arbitration Court to declare the Bulgarian State Railways company, BDZ Holding, bankrupt.

The information was reported Monday by the Bulgarian Trud (Labor) daily, citing own insider sources.

The reason behind the claim is the staggering debt accumulated by BDZ, more precisely the so-called second bond for EUR 120 M. The credit was granted to the previous Cabinet of the Three Way Coalition and installments have not been paid in many months.

The news has been confirmed for Trud by senior officials from the Transport Ministry and personally by the Chairman of the BDZ Board of Directors, Vladimir Vladimirov.

The defaulted loan has been contracted with the French banks BNP Paribas and Societe Generale, the Austrian Creditanstalt and the Belgiun Dexia. About 15% of the loan has been granted by the Bulgarian First Investment Bank (FIB).

Recently, to the surprise of railway experts, FIB purchased documentation for the tender to privatize the cargo unit of BDZ. The privatization procedure is expected to conclude by March, 2013.

In addition to FIB, the other three final bidders that emerged are: the largest, private Romanian railway operator Grup Feroviar Roman, which is the owner of BRC, Kiril Domuschiev with the recently founded company Bulgarian Cargo Express and the Austrian Donau Finanz.

The bankruptcy claim comes as a shock to the Holding since 1 500 cargo train cars are used as collateral in the loan, and they are in the best condition. All remaining cars are obsolete and need serious repairs.

"Banks are fed up with these gimmicks. How can one expect something different when the loan has not been serviced in 3 years, and no one even picks up the phone when they call to ask what is happening with their money," a source from the Transport Ministry, quoted by Trud has said.

According to Vladimirov, the claim does not aim at declaring the Holding bankrupt, but rather to appease the banks that they have some guarantees in getting their money back. He explains the bankruptcy claim must be examined by a Bulgarian Court, which is backed by the legal counsel of the Transport Ministry and of BDZ.

The delayed payments for the loan in the last 3 years already amount to EUR 32 M.

BDZ is negotiating with creditors now in an attempt to be granted another deferral.

Meanwhile, it emerged last Friday that the main account of BDZ has been garnished on a request from the German bank KfW.

According to estimates, BDZ currently owes KfW some EUR 41 M for Siemens Desiro electric trains it bought in 2005, a debt it does not manage to service as per the arranged schedule.

If BDZ is to be declared bankrupt, the money would not be enough to cover the huge debt, estimated in the vicinity of a total of over BGN 720 M.

In mid-November 2012, Bulgaria's Privatization Agency launched a second privatization procedure for BDZ's Freight Services, after the first one fell through.

The second attempt to sell the cargo unit of BDZ will only include strategic and financial investors.

The privatization of BDZ's profit making unit, Freight Services, is to secure money to cover huge debts of the company and help revive its other unit, Passenger Services.

However, experts from the railway sector have already said the State should not count on receiving much as the revenues of the cargo unit dropped by 30% in 2012, while the debt keeps climbing up.