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Metro, Bank Make A Deal
Rush hour commuters ride on a Metro train in Washington.
(AP)
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The agreements hinged on the credit rating of a third party that guaranteed the deals. In most cases, that party was struggling insurance giant American International Group. When AIG's credit rating was downgraded, the banks had the authority to declare the deals in default and seek the money all at once.
Most banks have been in talks with transit agencies and given them extensions; KBC also gave extensions but is the only bank that sought immediate payment, officials and industry sources said, and Metro went to court to stop the action.
Despite yesterday's decision, general managers of transit agencies in Los Angeles, Sacramento, Santa Clara, Calif., Atlanta and Chicago are coming to Washington next week to appeal to Congress. Transit industry attorneys say that 25 transit agencies in 18 states could have to make $2 billion to $4 billion in payments if their deals go into default, forcing cuts in services.
The officials want Congress to pressure the U.S. Treasury and the Federal Reserve to step in as guarantor for the deals, which they say would cost the federal government little. "We're not asking for a bailout," Catoe said.
Treasury officials are reluctant to step in because they do not want to be seen as rewarding tax shelters for banks and other private investors, who have obtained millions in tax benefits from these deals, sources familiar with Treasury's thinking have said.
The judge suggested a settlement this week that would have given KBC more than $17 million from a trust account Metro has for lease payments.
The IRS has reached agreements with dozens of banks, allowing them to keep 20 percent of their tax benefits and refund the rest if they agree to settle by year's end. Collyer suggested this week that KBC was motivated to collect payment from Metro to recoup some of its lost tax breaks. Of the $43 million that KBC was seeking, $25 million represents the value of its expected tax benefit, which the bank would no longer be entitled to receive if it settles with the IRS.
KBC has also suffered tremendous losses on its portfolio, records show, and a payment from Metro would cover some of those losses.
Staff researcher Meg Smith contributed to this report.
