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Last week, the Washington Metropolitan Area Transit Authority (WMATA) reached an agreement with Belgian bank KBC Group to end a long-term leasing deal. The bank had been seeking $43 million from WMATA for being in technical default of a leaseback agreement as a result of the American Insurance Group (AIG) collapse.

But WMATA isn't the only transit agency suffering from AIG's reduced credit rating. Thirty other agencies are in default of their transit leasing agreements, known as Sale-In/Lease-Out and Lease-In/Lease-Out (SILO/LILO). Banks could require those agencies to collectively pay more than $2 billion in fees.

Yesterday, officials from 11 transit systems met with congressional leaders urging them to assume the role of AIG and other insurers in SILO/LILO transactions to prevent banks from collecting the fees. The treasury department would essentially be backing its own securities, with no financial risk to the federal government, according to the agencies

"Through no fault of their own, transit agencies could be forced to pay hundreds of millions of dollars in fees to make the investors whole," American Public Transportation Association Chairman and Metropolitan Atlanta Rapid Transit Authority General Manager Beverly Scott told congressional leaders. "The banks have the opportunity to gain 100 percent of the tax benefits that have been disallowed, which would in turn devastate transit agencies, which will be required to pay more than $2 billion to the banks immediately, at a time when the public, and our riders, can least afford it."

From the late-1980s to 2003, the Federal Transit Administration encouraged the agreements as  way for transit agencies to gain additional revenue. Agencies would sell assets to a bank, which then would lease them back to the agency. To secure the transactions, sale proceeds in the form of treasury securities were placed into an account that insurers such as AIG guaranteed. However, the deals required the insurer to maintain a AAA credit rating. Since AIG's credit was downgraded, the agencies are in technical default of their agreements.