KBC Bank Gives WMATA 10 Days To Make Termination Payment

WASHINGTON - In a hearing yesterday before a U.S. district court judge here, KBC Bank NV of Belgium agreed to give the Washington Metropolitan Area Transit Authority 10 more business days to make a $43 million termination payment on a sale-leaseback deal that has technically defaulted.

Judge Rosemary M. Collyer ordered the agreement and scheduled a hearing for Nov. 12 at 10 a.m. to determine whether WMATA has done everything it can to find another guarantor after American International Group Inc. lost its triple-A ratings and caused the default.

The court action is being watched by 30 other transit agencies that have sale-leaseback deals guaranteed by AIG.

WMATA and other transit agency officials have been urging the Treasury Department officials to take the place of AIG as guarantor, which would give the deals a triple-A rating and negate the defaults.

WMATA and other transit officials contend it is necessary because the defaults could force transit to make a total of $4 billion of termination payments to investors. Leaders of the House Transportation Committee have pegged the amount of transit agencies' exposure to defaulted sale-leaseback deals as high as $16 billion.

"The best, the lowest-cost solution still is for Treasury to step in as guarantor," said Candace Smith, a spokeswoman for WMATA. "It won't cost them anything. But it certainly would end up costing governments."

KBC is demanding WMATA pay $43 million for a deal that closed in September 2002 and financed 36 rail cars. The authority could face up to $400 million in payments on 16 sale-leaseback transactions that were done between 1997 to 2003, in which they sold rail infrastructure worth more than $1.6 billion. In most of the deals, AIG was the guarantor.

Under these tax-advantaged leaseback transactions, governmental entities including transit agencies sold or leased an asset, such as transportation equipment, to a private entity in exchange for an up-front payment, usually about 3% to 6% of the asset's value.

The private entity was able to write off the depreciation costs of the equipment on its federal taxes while leasing the equipment back to the municipal entity. When the lease ended, the asset would revert back to municipal ownership for a nominal fee.

The transactions are not limited to transit assets, but also include sewage plants, water treatment facilities, and government buildings.

A growing group of lawmakers and transit agencies, including WMATA and the Los Angeles County Metropolitan Transportation Authority, have sent letters to Treasury and Federal Reserve officials urging them to consider guaranteeing the deals under the Emergency Economic Stabilization Act. Discussions between the groups and Treasury are said to be ongoing.

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