Washington Metro reaches leaseback deal settlement

Posted on November 14, 2008

Washington Metropolitan Area Transit Authority (Metro) and Belgian bank, KBC Group, reached a settlement, ending 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.

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.

The chief executives of several major transit agencies will join Metro on Capitol Hill, urging Congress to legislate a provision in the economic stimulus bill to require the Treasury Department to back AIG and other insurers’ credit ratings.

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