Metronet Rail bondholders, guarantors continue to discuss options for escrow funds

By Angela McDaniels

Tacoma, Wash., Dec. 8 - Ambac Assurance UK Ltd. said the discussions being held between the company, Financial Security Assurance (UK) Ltd. and some holders of bonds issued by Metronet Rail BCV Finance plc and Metronet Rail SSL Finance plc about uses for escrow funds have not yet reached a conclusion.

The confidentiality agreements that the company and Financial Security Assurance (UK) had with the participating bondholders expired Monday. Ambac Assurance UK said it will continue to work toward a decision regarding the application of the escrow funds, which could be used to fund a redemption or tender offer.

As previously reported in February 2008, London Underground Ltd. placed £1.24 billion into escrow to fund the bonds' £1.03 billion put option price.

The affected bonds are Metronet Rail SSL's £350 million 5.309% guaranteed secured bonds due 2032 and £165 million 2.8756% index-linked guaranteed secured bonds due 2032 and Metronet Rail BCV's £350 million of 5.305% guaranteed secured bonds due 2032 and £165 million of 2.876% index-linked guaranteed secured bonds due 2032.

The escrow funds were deposited in the names of bond trustee Deutsche Trustee Co. Ltd. and the guarantors, which are Ambac Assurance UK for the 5.305% and 2.8756% bonds and Financial Security Assurance (UK) for the 5.309% and 2.876% bonds.

On Monday, Ambac Assurance UK said the documentation relating to the bonds does not clearly set out how the escrow funds should be applied and that the guarantors were discussing options for these amounts with the participating bondholders.

Escrow funds are currently being used to pay scheduled interest and principal. Other possible applications under discussion have included a tender offer or acceleration of the bonds at par, according to the release.

Ambac Assurance UK noted that its guaranty remains in full force and effect.

London-based Metronet operates part of the London Underground under public private partnership contracts.

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