Local
Federal relief for agency remains unknown quantity
By: Kytja Weir
Examiner Staff Writer
December 23, 2008
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If not, Metro could owe up to $400 million in payments to banks on 16 deals dating from 1997 to 2003 to lease equipment.
The situation arose because Metro and some 30 transit agencies nationwide engaged in what are known as “lease-back transactions” that allowed transit agencies to lease railcars and other equipment that banks bought from them. In exchange, the banks were able to avoid some federal taxes as the value of the railcars depreciated.
The Federal Transit Administration had approved such deals, but the Internal Revenue Service banned them several years ago. Still, the existing deals remained on the books, with transit agencies paying regular installments.
Yet when insurance agencies, such as American Insurance Group, that insured such agreements got hit in the credit crisis and lost their prime credit ratings, the transit deals began to unravel. The leases had stipulated that insurers must maintain a AAA rating. Without the rating, the banks could seek the full remaining balance on the no-longer-valid leases.
In the fall, Belgian bank KBC Group sought a $43 million payment from Metro on its equipment lease. After negotiations in federal court, the two sides reached an undisclosed agreement.
Yet Metro and the other transit agencies have many other similar deals with other banks. They say they don’t have the money — nor the ability to borrow it in the current credit crisis.
Transit agencies have petitioned federal officials for relief in the federal auto rescue plan.
On Friday, two local members of Congress, James Moran, D-Va., and Chris Van Hollen, D-Md., also urged the White House to include a provision in the auto industry bailout package that would let the government step in for the insurance agencies as guarantor of the transit agencies’ lease agreements, keeping them out of default. It was not included in President Bush’s initial proposal on Friday.
