Faced with financial crisis, Metro turns to Treasury Department

WASHINGTON - In a last-ditch effort to avoid financial disaster, Metro - faced with more than $400 million in bank payments - is turning to the Treasury Department for help.

The transit agency's financial woes stem from the recent collapse of financial giant AIG (American International Group). Metro had used AIG as an insurer for a number of deals it made with banks. The deals allowed Metro to do things like extend the transit system and buy new rail cars.

But because AIG's financial status has been downgraded, the banks Metro dealt with can now technically claim default and ask for all of their payment at once.

The most immediate impact could come next week. Belgian Bank KBC Group says Metro must pay $43 million by Wednesday.

"If we were forced to pay this, on this obvious short notice, we would not be able to avoid ultimate impacts to how we provide our services to the people of this region," Metro Board Chairman Chris Zimmerman said Friday.

With General Manager John Catoe by his side, Zimmerman requested that Treasury Secretary Henry Paulson step in and allow the Treasury Department to act as the guarantor or insurer of the deals Metro has with these banks.

"We think this is a pretty easy way for the federal government to avert part of the financial crisis that doesn't involve a lot of funds, that doesn't involve risk," Zimmerman says. "Their own treasuries are backing these deals and agencies are paying the bills. We don't think it is an unreasonable request."

While Metro is at the leading edge of this financial situation, other transportation systems across the country -- Atlanta, Chicago, Los Angeles and San Francisco -- that used AIG as an insurer are on the same train.

In total, WMATA has 16 financial deals with AIG that could go into default. If all the banks were to ask for their money upfront, Metro would be looking at paying more than $400 million.

To put that in perspective, Metro's capital budget -- which is set aside to repair, upgrade and maintain things like tracks, platforms and rail cars -- is just over $600 million for fiscal year 2009.

Metro is now hoping for one of three possible scenarios:

• The banks back down on their demand on payment
• The Treasury Department steps in and acts as Metro's guarantor
• A judge grants a long term or temporary restraining order in the case

"If the worst case happens, then we have a major problem," Metro General Manager John Catoe says. "We have to find dollars that we have set aside for the capital programs of this agency to keep our system operating. It is going to be a huge impact to this region."

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