The decision to refuse to guarantee new debt raised by Metronet has been defended by Transport for London's recently appointed finance director Stephen Allen.
Metronet, the consortium responsible for two thirds of the work on upgrading the London Underground, was plunged into administration when TfL would only supply the group with £121m of the £551m it had requested.
Allen told the FT that the decision not to continue guaranteeing new debt raised by Metronet was the right one. Up until the decision was made London Underground had always promised guarantee Metronet's borrowings.
Allen explained that London Underground and TfL had told Metronet, in a letter on 29 June, that they would no longer be able to guarantee any future borrowing the contracting group would take on.
The decision effectively pushed Metronet over the edge, as the letter meant that Metronet could no longer turn to its banks for cash and had to ask for the £551m rescue loan from London Underground.
'If we were to undergo the same process again, we would send a similar letter in the blink of an eye. It's very clear that what pushed Metronet into administration was the financial difficulties created by the company,' Allen said.
Further reading:
Transport for London announces interim FD
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