Credit Crisis May Force Metro to Pay Millions

In most cases, the transactions were guaranteed by a third party. In many of those, the third party was AIG. But as AIG's financial health deteriorated in recent months, its credit rating was downgraded, reflecting the increased risk that the company could not meet its obligations. The terms of the transit deals required AIG to maintain a high credit rating. Because of that, the banks now say the deals are in default, allowing them to force the agencies to pay millions of dollars in termination fees immediately.

The banks are motivated in part because the IRS has offered amnesty to any company that gives up its tax shelters by the end of the year.

Kissal said federal intervention would ease the crisis. "We would be able to satisfy the technicality so the banks would not be looking to take their greed out unnecessarily on public transit," she said.

Officials said that at the same time the Treasury Department is working to prop up large banks with taxpayer support, some of the same banks are trying to profit on the backs of public transit agencies.

Rob Healy, vice president for government affairs at the American Public Transportation Association, an industry group, said that investors, mostly banks, "are coming after the transit agencies" and that the affected agencies might face "a couple billion dollars of exposure." Some transit agencies are being forced to cut service or raise fares to pay for the increased cost of fuel, he said.

Metro says it is making its regular lease payments and therefore should not have to make payments to the banks. The agency said it is working with banks to get waivers and extensions until another solution can be found. SunTrust, an Atlanta-based bank, has agreed to terminate one of the deals without demanding further payment from Metro.

"If everyone acted like SunTrust, we might be able to work our way through this," Metro's Kissal said. A spokesman for SunTrust declined to comment.

KBC, by contrast, notified Metro that it expects payment by next week, and the agency fears other banks will make similar demands.

KBC did not return a call to its New York offices or an e-mail to its corporate headquarters in Brussels.

The company is one of the largest retail banks in Belgium and has a large presence in central and eastern European countries, including Poland. The company had avoided major losses during the credit crisis until last week, when it told investors that it would lose $1.2 billion in the third quarter, in part because some of its U.S. investments were wiped out. Banks worldwide are responding to similar losses by squeezing customers and scraping for available savings.

Other transit agencies are bracing for similar problems. In Los Angeles, "the worst-case scenario is that we could end up having to come up with $100 million to $300 million overnight," said Marc Littman, spokesman for the Los Angeles County Metropolitan Transportation Authority. "That would be a tough nut to swallow." Cutting service would be an option, he said, but a last resort. "Our board is looking at different options right now."

The Los Angeles authority participated in 10 deals, eight of which were insured by AIG, he said.

Staff writer David Cho contributed to this report.