WASHINGTON - The Washington Metropolitan Area Transit Authority and a Belgian bank failed to reach an agreement yesterday that would unwind a leaseback deal in exchange for a $17 million payment from the transit agency, but the parties will return to federal court for a third day this morning to continue negotiations.

Judge Rosemary M. Collyer of the U.S. District Court for the District of Columbia had pushed the parties to consider a compromise Wednesday. That came at the end of a hearing in which WMATA sought an injunction to stop KBC Bank NV of Belgium's demand for a $43 million termination payment on the deal, which was in technical default after its guarantor, American International Group Inc., lost its triple-A ratings. While no agreement was reached yesterday, talks will continue at 11 a.m. today.

The case has been closely watched by up to 30 other transit agencies nationwide facing similar demands from banks participating in leaseback deals backed by downgraded insurers.

Carol Kissal, chief financial officer of WMATA, said one bank had already unwound a leaseback deal with her agency, causing no termination payments, but said that 15 other deals were still in technical default. She stressed on Wednesday that unwinding the deals would be the best solution.

Under these tax-advantaged leaseback transactions, governmental entities, including transit agencies, counties, and cities, sold or leased an asset such as transportation equipment to a private entity in exchange for cash.

The government or agency typically got an up-front payment, and the private entity was able to write off the depreciation costs of the equipment 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.

And while Treasury Secretary Henry Paulson on Wednesday said that state and local governments - including transit agencies - would not have access to the $700 billion Troubled Asset Relief Program, 18 transit agency and state departments of transportation officials sent a letter that day urging Paulson to include them.

WMATA and other transit officials have said that if Treasury or the Federal Reserve would simply guarantee the deals, the triple-A rating would return and negate the technical defaults triggered by AIG's downgrade.

Candace Smith, spokeswoman for WMATA, said that transit agency officials from Atlanta, Chicago, Los Angeles, Sacramento, and Santa Clara, Calif., were expected to come to Capitol Hill on Tuesday to lobby Congress for legislative help.

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