Metro settlement reached in leaseback deal
Metro and Belgian bank, KBC Group, reached a settlement today to end a long-term leasing deal after nearly three days of talks in federal court.
“The agreement benefits the riders of our system and taxpayers of this region,” said Metro General Manager John Catoe outside of U.S. District Court. “Metro no longer faces the immediate threat of cuts to our capital budget and a downgrading of our credit rating.”
All parties agreed not to discuss the terms of the settlement.
KBC Group was seeking an immediate $43 million payment from Metro after the credit rating of insurer, American Insurance Group, was recently downgraded. The downgrade put the deal in a technical default and allowed the bank to seek payment because AIG had guaranteed the agreement between KBC and Metro.
Metro had asked a federal judge to temporarily bar the bank from collecting payment. The judge urged a compromise after hearing arguments at a Wednesday court hearing.
“It sends a strong message to other banks that they cannot make a financial windfall at the expense of transit riders,” Catoe said.
The case was being closely watched by financial institutions and other transit agencies that have received similar demands from other banks.
Metro has 14 similar lease agreements with financial institutions. Several banks have threatened to put the agency into default under the agreements unless Metro finds additional high-rated insurance coverage of the deals now that AIG’s credit rating has been downgraded. Metro and a group of 30 other transit agencies have asked the Treasury Department or Federal Reserve to back the insurers’ guarantees of the deals.
“We’re asking the federal government to guarantee the insurer’s credit rating,” Catoe said. “This would be at little to no cost to the federal government, and the transit agencies would no longer be in technical default of the contracts.”
The chief executives of several major transit agencies will join Metro on Capitol Hill Tuesday urging Congress to legislate a provision in the economic stimulus bill to require the Treasury Department to back AIG and other insurers’ credit ratings.
News release issued at 5:55 pm, November 14, 2008.