[PRCo] Lease back financing

[Phillip Clark Campbell]

To PRC group;


About Thanksgiving it was mentioned that transit agencies were involved in
lease back arrangements with their equipment - BART in San Francisco as
well as Sacramento.

I wrote the following:

In another post you [Mr.Schneider] mentioned Sacramento
being caught up in the AIG fiasco.  BART has to come
up with $40-million fast for the same reason - AIG.
Another news item said that SF Bay Area transit
systems have 'several hundred' of such lease back loans.
What other systems are involved?  I haven't heard more.
Here are two quotes from the URL below:

"San Francisco made several hundred millions of
dollars worth of deals,..."

"Transit agencies, then, are like crack addicts,
addicted to the quick benefits of loans, leases, and
other poorly considered deals.."

http://thetransportpolitic.wordpress.com/2008/10/26/short-term-thinking/
I received an URL via email today which addresses the other systems involved 
in the SF-bay  (the whole article is enclosed below:)

http://tinyurl.com/5bezxv

Here are some quotes from this article:

"Muni: Sold and leased back 151 light-rail vehicles"  Maybe the repo man will confiscate them in the middle of the night.

"Should the deal sour, Muni could owe as much as $140 million — 
or
nearly 20 percent of its annual operating budget — ..."

"The American Public Transportation Administration, or APTA, 
said it’s
confident transit agencies won’t have to fork over the hefty sums, 
saying the federal government encouraged the deals."


Now this is leadership isn't it.  The article makes plain that transit agencies across
the nation are affected.


Phil




Muni, BART may pay for poor past financial deals
By Mike Aldax
Examiner Staff Writer 12/10/08 
Pretty penny: The San Francisco Municipal Transportation Agency may
owe
banks $130 million from risky past investments.

SAN FRANCISCO – As the economy worsens, financial deals made in 
the
past 20 years by public transit agencies nationwide — including in 
the
Bay Area — may have crippling results that would likely impact service.

More than 30 transit agencies, including BART and the San Francisco
Municipal
Transportation Agency, are asking the federal government for
protection against 
risky financial deals made from 1989 through 2003.

As part of the deals, the transit agencies sold rolling assets, such as
buses, 
rail cars and equipment, to bankers for a quick infusion of
cash. 
The bankers, who benefited from a tax shelter in such deals, 
would then lease the assets back to the agencies at a discount, 
according to the Tax Foundation, a nonprofit tax-research group 
based
in Washington, D.C.

The penalties for terminating the deals involved steep fines for
transit agencies. 
And as the companies guaranteeing the deals fall
victim to the global credit 
crunch, transit agencies across the nation
are facing millions of dollars in 
payments to bankers.

At its regular board meeting last week, Muni chief Nathaniel Ford
expressed 
concern about the sale-out, lease-in deal the transit agency
made with 
investors in 2002.

Should the deal sour, Muni could owe as much as $140 million — 
or
nearly 20 percent of its annual operating budget — 
according to
spokesman Judson True.

The transit agency’s deals would “technically” default should the
guarantor 
of the agreement, Financial Security Assurance Inc., or FSA,
endure 
another credit-rating downgrade, as it has in recent months.
Another 
rating hit is possible, as FSA’s parent company, Belgian-French 
financial services group Dexia SA, works to sell the company to 
Assured
Guaranty, a Bermuda-based holding company facing its 
own financial
challenges, True said.

“We’re working collaboratively with our elected representatives and 
other agencies to find a solution so that this problem won’t affect 
service to our customers,” he said.

Transit agencies across the U.S. have banded together to ask 
the
federal government for a bailout.

The American Public Transportation Administration, or APTA, 
said it’s
confident transit agencies won’t have to fork over the hefty sums, 
saying the federal government encouraged the deals.

 “There are discussions going on in Congress as well as with the 
Treasury Department,” said Mantill Williams, APTA spokesman.

Beverly Scott, APTA chairwoman, said public transit users will 
be the
victims of any financial losses.

“The innocent victims will be the millions of riders who rely on 
public
transit every day,” Scott said.

maldax at sfexaminer.com

Coming back to haunt them

A sale-in, lease-out crisis is affecting transit agencies in the Bay 
Area and nationwide.

Muni: Sold and leased back 151 light-rail vehicles
Guarantor: Financial Security Assurance Inc. (FSA)
Concern: Should Moody’s downgrade FSA’s current credit rating of Aa3, 
Muni could owe as much as $130 million to banks. If completed, 
the sale
of FSA to Assured Guaranty Ltd. could downgrade the 
credit rating to
Aa2.

BART: Sold and leased back rail equipment for $230 million
Guarantor: American International Group Inc. (AIG)
Concern: Should AIG’s credit rating drop below B-triple plus, 
BART
could owe as much as $40 million to banks.

Sources: SFMTA, BART