N.Y. MTA Seeks Counterparties To Replace Lehman Subsidiary

New York's Metropolitan Transportation Authority is looking for swap counterparties that it hopes will be able to take over derivative contracts with a subsidiary of bankrupt Lehman Brothers Holdings Inc., the agency said yesterday.

The MTA is seeking to replace swap counterparty Lehman Brothers Special Financing, which filed for bankruptcy in October, rather than have them chosen by the courts. A bankruptcy court in Manhattan today will hold a hearing on the fate of 930,000 outstanding derivative contracts involving Lehman Brothers.

The creditors are trying to have the court either assign the swaps to other counterparties or terminate them, said MTA finance director Patrick McCoy. "We want to preserve our right to do the market quotation process," McCoy said. The market quotation process allows the non-bankrupt party to assign a new counterparty.

While an assignment of new counterparties by the court wasn't necessarily a bad outcome, the MTA wanted to preserve its legal rights and make sure it doesn't incur costs from Lehman's bankruptcy, he said. The MTA has a swap and a swaption with Lehman with a notional value of $253.7 million.

The MTA is looking for at least three new counterparties for the swap. Finding counterparties is a little more difficult than in the past because financial institutions are less interested in getting involved in derivative contracts, he said.

"Its a different market now than when the swaps were entered into," he said.

Also yesterday, the MTA finance committee approved a 2009 budget that includes further service cuts. The full MTA board will vote on the budget tomorrow. Earlier this month, a state commission recommended the creation of a new MTA credit that would issue as much as $30 billion of bonds backed by a payroll tax. That and other suggestions that would mitigate some of the service cuts and a 23% toll and fare increase could be taken up by the state Legislature next month.

In a year-end report, the MTA announced it had issued $5.94 billion of debt, which included $1.16 billion of new money, $3.29 billion of refundings, $741.5 million of conversions, and $750 million of commercial paper.

The MTA completed 14 bond transactions this year, about twice their usual amount, due to refinancing auction-rate securities, variable-rate debt, and other debt that carried enhancement from downgraded bond insurers, McCoy said. The authority had not yet calculated the cost of the additional issuance, he said.

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Transportation industry
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