While London Underground trains have resumed an almost normal schedule after the July 7 terrorist attacks, by the end of last week there were still several routes that remained closed until further notice.

These delays are expected to have little bearing on the performance of the Tube Lines and Metronet public/private partnership securitizations, market sources said, because both are covered by terrorism insurance and neither transaction is exposed to the effects of lower passenger volumes.

The two vehicles under the Metronet structure include Metronet Rail BCV and Metronet SSL - both involve the circle line targeted in the attacks. The Metronet Rails deals are both wrapped by monoline insurers Ambac and FSA, respectively. The Tube Lines deal incorporates GBP1.8 billion ($3.16 billion) of senior paper split into GBP630 million ($1.17 billion) enhanced notes

and GBP600 million of notes wrapped by Ambac.

Any ticket-revenue losses caused by a prolonged station closing would be compensated for by London Underground, a wholly owned subsidiary of Transport for London. "The way we understand it is that [London Underground] will pay [Metronet] for any rectification costs associated with the incidents last week," said Magdalena Richardson a credit analyst at Standard & Poor's who is monitoring the Metronet deals.

"[Transport for London] hope to get some additional monies from the government, but this is not clear. [We] expect a better picture when [the] exact cost of damage is assessed."

But the July 7 attacks could add further delays to the renovation project under the Metronet deals and add negative pressure on performance. In April S&P revised the outlook on the underlying rating of the wrapped Metronet bonds to negative and there has been no rating action on the Tube Lines deal.

"The Metronet consortium has been underperforming, but the Tube Lines consortium has been performing in line with expectations," said Michael Cox an analyst on the structured finance credit research team at The Royal Bank of Scotland. "As far as the events of last week go, they will complicate the work being undertaken by the two consorts but the contracts include typical force majeure language that would ensure they are not penalized for delays in the work, or reduction in availability as a result of the attacks."

The Metronet consortium includes WS Atkins, Balfour Beatty, Bombardier, Thames Water and Seaboard. The Tubelines consortium is made up of Amey, Bechtel and Jarvis.

Richardson added that S&P believed Metronet had access to enough working capital to deal adequately with the aftermath of the attacks and was capable of redirecting efforts to continue with renovation works, adding that the appointment of new CEO Andrew Lezala is expected to bring some changes to the way Metronet functions.

S&P reported that the next year will be crucial for the deal to start seeing these improvements implemented. "They know they need to catch up with delays and they know they need to improve," added Richardson.

According to market sources, Metronet is slated to issue a statement at the end of the month reaffirming its plans to improve progress. Richardson said that S&P spoke to Tube Lines last week regarding Thursday's incidents, adding that the attacks are classified as a fall majeure under the contracts, hence they are held financially harmless as a consequence.

Additionally, Infrastructure damage would be fully insured by London Underground.

(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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