How the leaseback deals worked:
» The deal: The original agreements 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 equipment depreciated. The transit agencies, in turn, were paid a portion of those tax-deferred savings.
» The money: Metro made more than 16 such deals between 1997 and 2003. Board member Peter Benjamin, who helped ink some when he was the transit agency’s chief financial officer, estimates Metro got more than $100 million out of it.
» The problem: Companies, such as American International Group, had insured such agreements but the leases stipulated that insurers must maintain an AAA rating. When the insurers got hit in the credit crisis, they lost their prime credit ratings, throwing the deals into question. Thus the banks could seek the full remaining balance on the no-longer-valid leases. Meanwhile, federal officials have been pressuring the banks to end the tax shelters.
