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Capital Markets

Infrastructure: End of the line for Metronet?

Just months after the conclusion of Eurotunnel’s latest restructuring, London Underground rail operator Metronet is shaping up to take the Channel Tunnel operator’s place as the market’s favourite infrastructure saga.

Doors closing on Metronet

Metronet, which entered PPP administration on July 18 last year, now faces a put option on its debt becoming exercisable this month. Metronet issued two fixed-rate and two index-linked bonds in 2003, both of which were wrapped – by FSA and Ambac. The total £1.2 billion ($2.45 billion) debt was issued through two finance companies, BCV Finance and SSL Finance.

On January 18, the creditors of these two companies have the right to require London Underground to take on the loans they have outstanding – ie to "put" the loans. If this happens, the outstanding bonds could be accelerated and investors face the prospect of being redeemed at par. This has an unfortunate precedent in Eurotunnel (see Investors rap MBIA over Eurotunnel payout, Euromoney, March 2007) and both investors and monoline guarantors will be anxious to avoid a repeat performance.

How likely is it that the put option will be exercised? Key to that decision will be the establishment of a settlement price acceptable to both sides. "The formula for valuation is unclear," explains Kale Brown, corporate securitization analyst at Barclays Capital.

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