TARP Reform Bill Includes Metro Lease-Back Relief

WASHINGTON, D.C., January 22, 2009 – Reps. Jim Moran (D-VA) announced today that the “TARP Accountability and Reform Act” (H.R. 384) which passed the House this afternoon includes language providing Metro and 31 other transit agencies across the nation relief from so-called “lease-back” transactions involving the purchase of subway cars. Under the bill, the U.S. Treasury Department would serve as the third party guarantor for all lease-back payment obligations of an affected transit authority. The bill passed the House on a 260-166 vote this afternoon.

“Lease-back” transactions -- in which transit agencies arranged for banks to purchase their Metro cars who then leased them back, have been severely harmed by the credit and financial crisis.  These agreements required that they be insured by an AAA credit rated insurance agency. When insurance giants like AIG lost their AAA ratings, the sale lease-back arrangements unraveled, requiring affected transit agencies to pay out huge sums of money to the banks that brokered the agreements.  The result is that most if not all of the country’s major transit agencies are on the hook for millions in penalties from the banks with whom the agreements were made.

“This provision avoids the financial crisis from bankrupting our public transit systems,” stated Congressman Moran. “The lease-back agreements in question are not in danger of financial default, but rather involve a technical, contractual default. Transit agencies are some of the most stable. Through this legislation, the Treasury can step in and prevent the agreements from unraveling at little to no risk of costing the taxpayers a dime. It’s a win for all parties involved: transit agencies, the banks and most importantly the riding public.”

Teaming with Washington Metro friendly legislators and House Financial Services Chairman Barney Frank, Moran has led efforts to include this provision in the TARP reform legislation. He recently sent letters to the President, Treasury Secretary and Federal Reserve Chairman requesting action on this issue, either through the auto rescue package or through unilateral action by the Treasury.

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