N.Y. Court: Fraud Lawsuit to Proceeds against Toll Road Firm

Tom Warne Report, 19 July 2013

Thenewspaper.com – July 16, 2013

A state court in New York is allowing a lawsuit to move forward by a financial guaranty insurance company against a toll road company for fraud over a scheme to purchase public infrastructure at high premiums. Syncora Guarantee Inc. has accused Australian tolling giant Macquarie of misrepresenting a $500 million bond contract to refinance five U.S. toll roads and bridges organized under the name American Roads LLC.

Macquarie’s financing deal worked similarly to a subprime mortgage, with payments on interest rate swaps beginning low and getting higher over time, thus backloading the debt the company used to buy toll roads. Macquarie depended on Syncora’s insurance to receive a AAA bond rating, so the toll company promised Syncora that the toll roads would be a reliable revenue stream.

To this this end, Macquarie hired Maunsell Australia Ltd to estimate traffic and revenue, which were supposed to be unbiased. The forecasts by Maunsell predicted heavy use of the roads to provide an increasing stream of revenue to pay off the debt. The lawsuit claims that the Maunsell forecasts were actually not independent, and the company received millions of dollars in “success fees” from Macquarie for each deal that was made as a result of the forecasts. Syncora claims this was a clear conflict of interest and sued.

“Less than one year after the bond issuance closed, American Roads began drastically underperforming, and its toll assets have since experienced plummeting year-after-year declines in traffic and revenue,” Syncora argued in its complaint. “As a result, Syncora is now exposed to hundreds of millions o dollars in payment obligations under its insurance policies, risks greater than that which it had bargained for or could have anticipated.”

Macquarie motioned for the lawsuit to be dismissed, saying predictions are not illegal. A county judge, New York Supreme Court Justice Melvin L. Schweitzer rejected all of Macquarie’s arguments and ordered the case to proceed to trial. Syncora has not yet incurred a loss, the company is seeking to be let out of the contract which was made without all of the facts made known.

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