RTA could lose money because of AIG woes

AP:

The Regional Transportation Authority is among about 30 transit agencies around the nation that could be on the hook for millions of dollars because of the woes of insurance giant American International Group.

Executive director Stephen Schlickman said Thursday the RTA alone could have to kick in $105 million.

According to Schlickman, the issue involves "lease-back" deals struck by the CTA and Metra in the 1990s. With the deals, transit agencies sold or leased assets like rail cars and facilities to investors, then leased them back. The agencies got the cash, and investors got a tax credit.

Here's more from the Sun-Times:

The RTA is working with other agencies to try to get the U.S. Treasury to guaranty AIG’s credit or to find some yet-to-be-determined legislative fix, Schlickman told the RTA board. AIG was saved by a federal bailout.

According to Joe Costello, the RTA’s chief financial officer, the CTA has nine transactions with a total exposure of $61 million — including one involving the L’s Green Line. Metra has one deal with a $44 million exposure.

Jon Hilkevitch has more on the arrangement that might cause the RTA some problems:

The problem stems from AIG's leading role years ago in complex financing schemes known as lease-leasebacks, which the transit agencies entered into to borrow money to buy new trains and buses and improve deteriorating facilities.

The practice is no longer allowed under federal law, but here's how it worked:

Private investors leased transit assets from the agencies and made upfront payments. In return, the private partners took advantage of tax breaks stemming from asset-depreciation clauses in the tax code that were not available to the public transit agencies. The agencies leased back the assets at a low rate.
...
The maneuver ran into trouble when AIG, the main player in deals that provided financial backing for the transactions, last month failed to maintain its credit rating, RTA Executive Director Steve Schlickman said.

This financial crisis is all a big mess isn't it?