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As a result of the global credit crisis that threatens to bring mass hysteria and signs of the rapture from Main Street to Wall Street, transit agencies across the country could have to pay billions -- namely, in such metropolitan as Atlanta, Chicago, Los Angeles, Washington, and San Francisco.
All of this, it seems, stems from the collapse of insurance mammoth American International Group. According the Associated Press:
Bay Area Rapid Transit, the San Francisco Bay Area's commuter rail system, could also feel the impact of AIG's woes. Six years ago, BART struck a "sale-in, lease-out" deal to sell its rail equipment for $230 million. The agency put $23 million into its general fund and gave most of the balance to AIG, which agreed to make lease payments to the investors over the next 30 years, spokesman Jim Allison said.Under the terms of the financing deal, BART would have to pay a $40 million payment to the investors if AIG's credit rating drops below B-triple plus. AIG's rating recently fell to A-minus, triggering payments from other transit agencies that reached similar equipment-financing deals involving AIG.
In addition to the agencies asking the Treasury Department and congressional staffers for financial assistance, this could also spell out increased fares at some point in the (near?) future. (Although BART, we should point out, is slightly less vulnerable compared to other cities.)
So the question, to those of you out there in the financial services industry, is this: why did BART go with AIG? It's an insurance company, so why would they be collecting rent payments?
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For the same reason the office building you're sitting in right now is probably owned by an insurance company. They have cash but no assets. Your landlord has assets but no cash. Swapsies.
None of this excuses the fact that for every dollar you give to AIG, 25c goes to fat boy Rooney and his badge-kissing pals at scummy Utd.
my question is, when will bart quit complaining? first it was low ridership and not enough revenue, now ridership has skyrocketed and they're still talking about raising fares, even as service takes a hit and the system reaches capacity.
It's a little confusing, but it sounds as if BART entered into one of these deals with an unnamed bank/investor group and AIG was insuring (guaranteeing) the lease payments. There must be a clause in the agreement between BART and their bank, that provides that if the insurer's credit rating drops below a certain level, the bank can demand a certain percentage of the balance owed. The $40 million must be the result of that calculation...
new font for SFist?
Here's the deal.
Cities sell their transit system railcars, buses, etc. to banks, who then lease them back to the cities. The cities get a pile of cash for the sale, and the banks get years of lease payments and the ability to claim a tax credit on the depreciation of the property -- so supposedly both sides win! (That's a total lie of course, it lets the city have some cash up front but it obviously favors the banks, leaving the city indebted years into the future. It's serious budget mismanagement by municipalities and vampire activity by the banks.)
To solidify the deal, the cities then use an insurer to insure that the payments to the bank will always be made. A clause is inserted into the insurance contract that lets the banks collect the entire balance owed them if there is a certain kind of credit event, like, say, if the insurer goes bankrupt or has its credit rating lowered.
AIG insured many cities' transit deals. When their credit rating was slashed, it not only brought a firestorm onto AIG, it triggered the out clauses for the banks in all the transit system leases.
Uh, can we deal with that horsefucker "sfnative1971?" Check out their illuminating history of posts: http://sfist.com/profile/sfnative1971
chomsky's comment was far more informative/understandable than any newspaper article so far.