AIG fallout could cause L.A. transit cuts

LOS ANGELES, Oct. 18 (UPI) -- Los Angeles County's Metropolitan Transportation Authority says it is considering significant service cuts because of the U.S. financial credit crunch.

Thanks to an equipment sale-leaseback deal it conducted with troubled American International Group, that company's financial woes has triggered a provision in which the MTA may be forced to make up lost tax breaks and down payments to investors in the deal, The Los Angeles Times reported Saturday.

AIG provided $1 billion in loans to finance the transactions and in return for fees paid by the transit agency, also guaranteed that the lease payments to investors, including Wells Fargo, Comerica and Phillip Morris, would be made on time, the newspaper said.

AIG's credit ratings were slashed because of billions of dollars of losses in the housing market and the firm was on the verge of collapse last month when it was bailed out by the federal government. Now, MTA officials say that unless they can find someone to replace AIG as the loan guarantor, it could be on the hook, perhaps forcing massive service cuts.

"I've lost a lot of sleep over this," Terry Matsumoto, the chief financial service officer and treasurer for the MTA, told the newspaper.