New York's Metropolitan Transportation Authority is considering terminating two leaseback transactions and replacing or restructuring the collateral on another following the downgrade of American International Group, which had insured the transactions, the agency said yesterday at a finance committee meeting.

The MTA also said that it will take the unusual step of reforecasting revenue and expenses over the next few weeks in light of the deteriorating economy.

AIG is involved in seven leaseback transactions with the MTA, but the insurer's downgrade last month has triggered actions on only three of those. Transit agencies across the country are trying to sort out their obligations to investors in leaseback transactions that used AIG as a guarantor.

In these types of transactions an agency would purchase equipment and then sell it to investors, who would then lease the equipment back to the agency. The investor would be able to write off the depreciation of the equipment from its taxes, something the government agency could not do. The terms of the transactions allowed agencies to realize a net gain.

MTA deputy counsel Jerome Page said that leaseback transactions from 1997 to 2003 had brought a net gain of $200 million to the agency.

In one of the transactions, the MTA is considering pledging additional collateral to what it has already pledged. The authority entered into a leaseback transaction for subway cars with Bank of America Leasing and Capital LLC in September 2003.

The original collateral was a zero coupon bond purchased from the federal Resolution Funding Corp. that matures in 2030. However, the lease lasts until 2033. During that gap, the proceeds of that bond were to be paid out to AIG Financial Products Corp. which would then begin making lease payments that the MTA had made.

AIG Financial Products Corp.'s portion of the transaction was insured by AIG and the downgrade requires the MTA to replace the collateral. The MTA is negotiating with Bank of America for approval to provide additional collateral in the form of $4.5 million of Treasury securities.

In two other leveraged lease transactions, the MTA intends to terminate the leases and make a $36.2 million payment to Regions Bank. The MTA sold subway fare equipment to AmSouth Leasing, Ltd., which is now part of Regions Bank, and leased it back in 2002 for periods of 18 and 20 years. AIG insured the leases in case of early termination.

Rather than replace the insurance, as required due to the downgrade, the MTA wants to liquidate Treasury securities that are currently held as collateral. However, because of fluctuations in the value of Treasuries, the MTA wants to delay the liquidation of the payments until January 15, 2009, in the hope that the securities will more closely approximate the termination payment. Last week their liquidation value was approximately $35.9 million.

After making the payment, the MTA would own the equipment. "The early termination will have the same effect of an early exercise of purchase option," Page said.

The MTA board tomorrow will vote on authorizations allowing MTA officials to execute these resolutions, but left some flexibility if a better solution arises. The Washington Metropolitan Area Transit Authority, which could face $400 in payments on its leaseback transactions, has asked the U.S. Treasury Dept. to take over from AIG as a guarantor.

Also yesterday, the MTA said it will update its forecasts to reflect new financial information coming from the state and city. Dedicated tax receipts have been coming in below July forecasts and well below 2007 levels.

Year-to-date real estate taxes have come in at $868.8 million, $176.3 million below the mid-year forecast and far below the $1.36 billion that had been collected by Oct. 2007. The MTA will report its findings to the finance committee at a special meeting on Nov. 10.


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