Comprehensive Annual Financial Report - Metro Transit

Bi-State Development Agency of theMissouri-Illinois Metropolitan DistrictNotes to Financial StatementsJune 30, 2011 and 2010reasonable, was significantly below the maximum exposure in the transactions, and didnot materially affect Metro financial results for the year (FY’10). The charge wasrecorded as interest expense in the financial statements for the prior year.2001 Lease/Leaseback of 34 LRVsWith respect to the Series 2001 Lease/Leaseback of 34 LRVs, Metro entered into threetranches: F1 and C1 dated August 30, 2001 and then C2 dated November 30, 2001.The F1, C1 and C2 tranches involved transactions for seven (7), twenty-three (23) andfour (4) LRVs, respectively. With respect to the F1 and C1 tranches dated August 30,2001, the thirty LRVs at closing had a fair market value of $120.0 million. Metro receiveda prepayment equivalent to the net present value of the headlease obligations totalingapproximately $120.0 million. Approximately $93.6 million was deposited with PremierInternational Funding, to partially meet Metro’s rent obligations under the sublease and toset aside funds to enable Metro to exercise its repurchase option. Financial SecurityAssurance Company, Inc. (FSA, now Assured Guaranty), rated Aa3 by Moody’s, andAA+ by Standards and Poor’s, guarantees, through a surety policy, the payments underthe agreement with Premier International Funding. Approximately $16.5 million wasdeposited with AIG (Equity Payment Undertaker) to meet Metro’s remaining paymentobligations under the F1 and C1 subleases and to set aside funds to enable Metro toexercise its repurchase options. The AIG downgrade referenced above triggered aprovision within the Participation Agreement requiring Metro to replace the paymentundertaker or substitute acceptable lease collateral. Additionally, a downgrade of FSA inNovember 2008 triggered a lease provision requiring Metro to replace the surety policy.With respect to the F1 payment obligation, On June 10, 2009, Metro terminated theagreement with AIG and deposited securities sufficient, at maturity, to meet Metro’sobligations under the sublease. As noted above, upon early termination of the F1Tranche of the 2001 Lease, in December 2009, the securities were sold and theproceeds used as part of the required termination payment. The St. Clair County TransitDistrict (SCCTD, one of Metro’s funding partners), which participated in the lease,contributed approximately 70% of the termination payment of the F1 Tranche.With respect to the C2 Tranche, the four light rail vehicles at closing had a fair marketvalue of $16.0 million. Metro received a prepayment equivalent to the net present valueof the headlease obligations totaling approximately $16.0 million. Approximately $12.9million was deposited with Premier International Funding to partially meet Metro’s rentobligations under the sublease and to set aside funds to enable Metro to exercise itsrepurchase option, if Metro chooses to do so. FSA provides a surety policy, to guaranteethe payments under the agreement with Premier International Funding. Approximately$ 1.8 million was deposited with AIG-Matched Funding Corporation (“Equity PaymentUndertaker”) to meet Metro’s remaining rent obligations under the sublease and to setaside funds to enable Metro to exercise its purchase option.Due to the credit rating downgrades of AIG and FSA, Metro was placed in technicaldefault with regard to the C1 and C2 Tranches. However, the lease investor agreed towaive enforcement of default remedies while cure negotiations took place.34