WASHINGTON (CN) – A Belgian bank used the worldwide financial crisis to declare a “pretextual default” that threatens the public Metrorail system of the entire Capital Area, the Washington Metropolitan Area Transit Authority claims in Federal Court.
Metro sued KBC Bank, of Belgium, and WMATA 2002 Trust KBC-A, Wilmington Trust Company, and AIG Financial Products Corp.
“The global financial meltdown, causing great individual distress and destroying financial institutions, now imminently endangers this area’s critical mass transportation infrastructure,” Metro claims. “Having taken advantage of this country’s open financial opportunities, an overreaching investor threatens the Metrorail system over a harmless, technical, nonpayment-related default, under a tangential provision of an otherwise fully performing financing arrangement for Metrorail cars.
“WMATA transferred 36 of its railcars by a lease to a trust with a sublease back to WMATA (known as sale-in, lease-out, or ‘SILO’) as part of a tax-advantaged financing plan (the ‘Financing Plan’) that allowed a Belgian bank large federal income tax deductions to offset its U.S. income. The tax advantages of this Financing Plan were legal at the time. But the Internal Revenue Code changed, and the Belgian bank is risking Internal Revenue Service enforcement and possible penalties unless it accepts a settlement with the IRS that requires the bank to undo the tax aspects of the deal. To do that, the bank declared a pretextual default and a $43 million forfeiture that if successful will cause vastly disproportionate harm to WMATA and threaten the public transportation system in the National Capital Region.
“In this action, WMATA seeks to halt the bank’s greed and to prevent the serious harm to public transportation and the public fisc that the bank’s conduct threatens. The remedies that WMATA seeks come at no cost to the bank. WMATA asks the Court simply to maintain the parties’ agreements in place.”
Metro (WMATA) is represented by Harvey Levin with Thompson Coburn.