CNN: Group: AIG's woes put public transit in trouble with banks

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From Emily Anderson
CNN

NEW YORK (CNN) -- The ongoing financial crisis could put public transit systems nationwide at risk of defaulting on more than $2 billion in loans backed by troubled insurer American International Group, an industry advocacy group said Thursday.

The problem stems from "lease-back transactions" -- made from the early 1990s through 2003 -- in which transit agencies sold equipment to banks and then leased them back.

"Thirty-one transit agencies nationwide used these leverage lease actions to finance assets," said Rob Healy, vice president of government affairs for the advocacy group American Public Transportation Association.

He added that one of the requirements was that securities used to make the lease payments were guaranteed with an AAA rating, which AIG provided in most cases.

But AIG's rating was downgraded after it accepted a federal government bailout in September, allowing the banks to demand early payments.

The heads of public transportation agencies in 25 cities and 17 states sent a letter to Treasury Secretary Henry Paulson on Wednesday asking for the federal government to act as a backer to prevent banks from collecting millions of dollars the agencies cannot spare.

The letter, signed by heads from agencies in New York, Massachusetts, Pennsylvania, Georgia, Texas, Oregon, California, New Jersey, Missouri, Chicago and metropolitan Washington, calls on the Treasury Department to act under the Emergency Economic Stimulus Act to prevent "significant additional costs and losses to the transit agencies, and, ultimately, to the taxpayer." ......(more)

The complete piece is at: http://www.cnn.com/2008/US/11/13/money.transit.agencies/index.html?iref=newssearch