Sunday, November 16, 2008

CTA leaseback jeopardizes CTA Green Line

I had blogged about a story about this over at my other blog, The Sixth Ward. The story I had was about the RTA engaged in such a deal and could lose money because AIG was suffering some financial difficulty. It looks like this crisis has come full circle and the oldest of the CTA L routes might be in trouble because of such a deal.

Story from Crain's:

The Chicago Transit Authority has asked a judge to intervene in a contract dispute that threatens to shut down the agency’s Green Line and force the agency to pay $76 million in damages.

The CTA has an agreement with EntreCap Public Financial Holdings LLC of Connecticut and two other organizations to lease back property, railway tracks and train stations on its Green Line. When the 45-year contract was signed in 1998, the CTA’s payments were guaranteed by American International Group Inc.

Two months ago, AIG’s credit rating was cut amid the U.S. mortgage meltdown that claimed several financial institutions and forced a federal bailout of the former insurance industry powerhouse.

AIG’s rating cut triggered a clause in the CTA leaseback contract that required the already cash-strapped transit agency to find another backer in 30 business days or face a $76-million penalty, along with the end of the deal with EntreCap.
CTA isn't the only city transit agency that has a problem with these leasbacks...
Besides the CTA, transit leaders in California, Atlanta and Washington, D.C., are facing the same pressure in similar leaseback deals guaranteed by AIG. Those leaders, along with ones from Chicago, are scheduled to appear before Congress next week with hopes of receiving financial aid or help in determining a solution.

The situation in Washington closely mimics the CTA’s dilemma. D.C.’s Metro agency asked a federal judge to intervene when a Belgian bank demanded $43 million after AIG’s credit rating dropped. Both sides, with the aid of a judge, reached a settlement on Friday. The terms were not disclosed.
This is some very unfortunate investment strategies. Hopefully the financial situation will change for the better.

The AP reports a settlement:

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