LONDON (Reuters) — Ailing transport group Sea Containers said there was no need for the UK Pension Regulator to warn it may compel the firm to pay into UK retirement plans because the company is in talks with the funds.

The regulator has warned Bermuda-domiciled Sea Containers, which operates the British GNER East Coast rail franchise, that it may order the group to pay money into two UK final-salary pension funds.

The passenger and freight transport company filed for bankruptcy protection last month after it missed the deadline for a $115 million bond payment.

"We don't accept it is reasonable or appropriate of the regulator to issue FSDs (financial support directions). We are in the middle of a restructuring ... the two (UK) pension funds are involved in that restructuring," a Sea Containers spokeswoman said yesterday.

The plight of pension scheme members in firms that go bust or seek bankruptcy protection has become a major business and political issue in Britain.

The Sea Containers case also throws a spotlight on how much power the regulator may have over companies domiciled outside the European Union. In May this year, a senior executive at the regulator told Reuters that the extent of its powers was unclear.

The watchdog's warning to Sea Containers was contained in a filing with the US Securities and Exchange Commission.

"They (pension fund members) will be ranked on an equal footing with bond-holders and other creditors. We are keen to let these discussions play out," the Sea Containers spokeswoman said.

A spokesman for the Pension Regulator declined to comment on specific details. "We are waiting for them (Sea Containers) to make representations to us," she said.

The bankruptcy protection filing covers two key divisions of the group — Sea Containers Services Ltd. and Sea Containers Caribbean Inc.

Sea Containers' largest unsecured creditor is United States Trust Company of New York with almost $265 million in debt, followed by Bank of New York with $103 million, according to the Chapter 11 filing with the U.S. Bankruptcy Court for the District of Delaware. The company has $650 million of consolidated debt. In addition to the bond that matured on October 15, it has public notes due 2008, 2009 and 2012.

The filing stated that as of June 30, the company had $1.67 billion in assets and $1.58 billion in liabilities.

The UK pension regulator's notices to Sea Containers relates to two final-salary pensions which cover about 1,300 staff and pensions.

The pension funds' trustees estimate the cost of winding up the schemes and buying annuities for members would cost a total of 134 million pounds ($254.7 million), according to the SEC filing. The largest scheme was set up in 1983, and the second and smaller fund was set up in 1990.

People paying contributions to the 1983 scheme will no longer accrue benefits for future service from September 30 this year and can join a Stakeholder Pension Plan in Britain instead, Sea Containers said in a statement last month. This change was agreed between the directors of Sea Containers Services Ltd. and the pension fund's trustees, it said.

In contrast to final-salary pension schemes, benefits from a Stakeholder pension plan vary based on performance of financial markets.

In its October 16 statement, Sea Containers said some operating subsidiaries would not be covered under bankruptcy. The GNER rail franchise will continue normal day-to-day operations.