Local
Metro, Belgian bank still talking over lease deal
By: Michael Neibauer
Examiner Staff Writer
November 14, 2008
A federal judge Thursday prodded Metro and Belgian bank KBC Group to settle over a $43 million payment the bank claims it is owed, but no deal was reached after a full day of closed-door talks.
Metro has asked U.S. District Court Judge Rosemary Collyer to block KBC’s payment demand through a preliminary injunction. The parties are scheduled to reconvene today, after spending Thursday marching in and out of Collyer’s chambers.
“Nothing is happening,” the judge said during a brief appearance in the courtroom. “Nothing has happened. And we’re still hopeful something will happen.”
Metro spokeswoman Candace Smith would say only that the sides are still talking.
The complex deal between Metro and KBC Group, known as a lease-back, unraveled earlier this year as a consequence of the nationwide financial meltdown. Under the 6-year-old arrangement, Metro sold 36 rail cars to KBC and other investors in return for roughly $96 million — KBC’s outlay totaled about $19 million.
KBC leases the cars back to Metro, collects payments through an interest-bearing trust, and writes off the assets for a tax deduction, essentially establishing a tax shelter.
American International Group insured the trust, and the terms of the deal required AIG to maintain a AAA bond rating. But AIG collapsed, spurring KBC to default Metro’s loan and demand a $43 million termination payment.
Already bleeding money because of the worldwide credit crisis, KBC is likely to lose the benefits of the tax shelter arrangement thanks to an Internal Revenue Service crackdown.
Metro has suggested that KBC is seeking a windfall to recoup what it will surrender in lost deductions in the future.
The trust has about $18 million. If Metro loses the fight, its managers say, the transit system would have to draw the remaining $25 million from its capital accounts and likely defer critical maintenance projects as a result.
Worse yet, Metro is tied up in 14 other lease-back deals. If the agency loses the fight with KBC, the other banks might demand $362 million in termination payments, which would be devastating, said Carol Kissal, Metro’s chief financial officer.
Hundreds of transit and public works agencies worldwide are involved in the lease arrangements. Metro’s fight is being closely watched, and Collyer may not want to set a precedent by forcing Metro to pay, courtroom observers said.
The leaders of 20 U.S. transit systems on Wednesday asked Treasury Secretary Henry Paulson to step in for AIG.
“If the private guarantees are not replaced in the imminent future, the technical defaults will cause a cascade of significant additional losses and increased costs that will exacerbate, rather than stabilize, the current market turmoil,” they warned.
Metro has asked U.S. District Court Judge Rosemary Collyer to block KBC’s payment demand through a preliminary injunction. The parties are scheduled to reconvene today, after spending Thursday marching in and out of Collyer’s chambers.
“Nothing is happening,” the judge said during a brief appearance in the courtroom. “Nothing has happened. And we’re still hopeful something will happen.”
Metro spokeswoman Candace Smith would say only that the sides are still talking.
The complex deal between Metro and KBC Group, known as a lease-back, unraveled earlier this year as a consequence of the nationwide financial meltdown. Under the 6-year-old arrangement, Metro sold 36 rail cars to KBC and other investors in return for roughly $96 million — KBC’s outlay totaled about $19 million.
KBC leases the cars back to Metro, collects payments through an interest-bearing trust, and writes off the assets for a tax deduction, essentially establishing a tax shelter.
American International Group insured the trust, and the terms of the deal required AIG to maintain a AAA bond rating. But AIG collapsed, spurring KBC to default Metro’s loan and demand a $43 million termination payment.
Already bleeding money because of the worldwide credit crisis, KBC is likely to lose the benefits of the tax shelter arrangement thanks to an Internal Revenue Service crackdown.
Metro has suggested that KBC is seeking a windfall to recoup what it will surrender in lost deductions in the future.
The trust has about $18 million. If Metro loses the fight, its managers say, the transit system would have to draw the remaining $25 million from its capital accounts and likely defer critical maintenance projects as a result.
Worse yet, Metro is tied up in 14 other lease-back deals. If the agency loses the fight with KBC, the other banks might demand $362 million in termination payments, which would be devastating, said Carol Kissal, Metro’s chief financial officer.
Hundreds of transit and public works agencies worldwide are involved in the lease arrangements. Metro’s fight is being closely watched, and Collyer may not want to set a precedent by forcing Metro to pay, courtroom observers said.
The leaders of 20 U.S. transit systems on Wednesday asked Treasury Secretary Henry Paulson to step in for AIG.
“If the private guarantees are not replaced in the imminent future, the technical defaults will cause a cascade of significant additional losses and increased costs that will exacerbate, rather than stabilize, the current market turmoil,” they warned.
