MQG Macquarie Group Limited

By Andrew Scurria 

A New York judge rejected Macquarie Capital (USA) LLC's bid to toss a lawsuit from bond insurer Syncora Guarantee Inc. over $496 million in soured toll-road debt.

Judge Anil C. Singh of the Supreme Court of New York County on Tuesday refused to dismiss the bulk of Syncora's lawsuit, which accuses the U.S. advisory arm of Australia's Macquarie Group Ltd. of providing misleading information around the financial viability of four toll bridges in Alabama and a toll tunnel in Michigan.

Syncora has been covering payments on revenue bonds and interest-rate swaps backed by those tolls since their operator, American Roads LLC, filed for bankruptcy in 2013. By that time, Syncora had already sued Macquarie for allegedly providing bogus traffic projections when the projects were refinanced in 2006.

"Syncora's complaint adequately alleges that Macquarie's misrepresentations were a direct and proximate cause of Syncora's actual losses," the judge said.

A Macquarie spokesman declined to comment on the ruling.

The collapse of American Roads, which Macquarie formed in 2005 and sold to private investment firm Alinda Capital Partners LLC the following year, was one of a series of soured wagers on U.S. toll roads in the years before the financial crisis.

Investors piled into toll-road deals in the 2000s that often involved state or local governments eager to shift costs and risks to the private sector. Global investment firms like Macquarie and Spain's Ferrovial SA assembled many deals with heavy debt loads on the assumption that toll revenue would only increase as Americans drove more miles.

In court filings, Macquarie blamed American Roads' problems on the housing crisis, rising gasoline prices, the Gulf oil spill and, in the case of the Detroit-Windsor Tunnel, out-migration from the area and a National Hockey League strike. The advisory firm relied on consultants from the Sidney-based Maunsell unit of Aecom, a Los-Angeles professional-services company.

Following the sale to Alinda, American Roads raised $496 million in bonds in 2006, court records show. Traffic failed to live up to expectations, and the company's debt continued to grow due to swap agreements meant to protect against interest-rate increases that never occurred.

American Roads' chapter 11 plan transferred ownership of the company to Syncora, which agreed to forgive the swap debt. Bondholders received no payments under the plan, but the insurance policies were preserved and have been servicing the bonds ever since. Bondholders unsuccessfully objected to their treatment under the plan, arguing that they were left exposed to the chance that Syncora would go insolvent in the future.

A $198 million tranche of the bonds matures in 2018, according to FactSet. Another $298 million matures in 2034.

Syncora can't rescind the policies covering the bonds because it received $10 million in premium payments after learning of Macquarie's alleged wrongdoing in 2009, including a $600,000 installment four days after filing suit, Judge Singh said. He allowed the insurer's claims for compensatory damages for fraud and negligent misrepresentation to move forward.

--Ryan Dezember and Emily Glazer contributed to this article.

Write to Andrew Scurria at Andrew.Scurria@wsj.com

(END) Dow Jones Newswires

February 15, 2017 12:54 ET (17:54 GMT)

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