Ok, got out to the job and we took things apart and got a closer look. It was then, that the simplest solution presented itself. Not sure why I couldn't see it before, but the service originally consisted of only the SWBD. It was served through the adjacent CT can. What we plan to do, is remove completely the 1200 A main, leave the external CT cabinet and run new parallel 500 CU through a new wireway (deleting the old CT can, although we could just remove all the wires and replace with new) straight into the 600 A SWBD. The (3) handles are the service disconnect, and the 400 A MDP will now be fed from the 400 A spare in the SWBD. The loads on the entire service = ~ 400 A calculated with utility demand + 25% plus our new loads. We should be good to go.
FYI - we have to re pull conductors from the new CT to the SWBD only because the original (3) sets of 500 CU are run in only (2) conduits. I'm going off memory, but I believe this violates 300.3 & 300.20. We don;t need three sets, but we'll never pull just one out because the conduits are stuffed. It's a mess, but we'll get er cleaned up.
Thanks for the feedback.