NEW YORK - New York's cash-strapped Metropolitan Transportation Authority terminated three swaps with bankrupt Lehman Brothers at a bigger discount than those negotiated by other public entities, the agency's finance director said on Monday.
While the nation's biggest mass transit only paid 53 cents on the dollar, other public agencies are paying from 60 to even 80 cents to end their Lehman swaps, Pat McCoy said at a webcast finance committee meeting.
In addition, the Lehman creditors committee signed off on the MTA swap terminations, McCoy said, which means there is no risk of any clawback. This is a protection that other public agencies also terminating their Lehman swaps have not won, he said.
The recession deprived the MTA, which carries around 8 million passengers a day, of substantial revenues it would have had from its share in local tax revenues.
Agency officials saw one bright spot in its latest financial report: rising revenues from a mortgage recording tax. However, an urban transaction tax did not achieve a similar gain.
Because two of the Lehman swaps had a negative value, the MTA paid $9.6 million to the bank, whose flagship brokerage business last year was bought by Barclays Capital Inc after Lehman's failure to find a white knight pushed it into bankruptcy.
MTA officials did not offer more details about the swaps, though one noted they were associated with variable rate debt. Many cities, states and agencies use swaps to hedge interest rate risks and capture a fixed rate.
The MTA's third swap, a guaranteed investment contract, had a positive value, and McCoy said the agency realized about 75 percent of that money.
Board Member Doreen Frasca, a public finance expert, said she did not believe public agencies, including the MTA, should enter swaps and sought more authority to review the agency's transactions.
It just breaks my heart that we had to throw $9 million down another Wall Street rat hole, she said.
Frasca also raised concerns about the MTA's outstanding swaps with other entities, including Ambac Financial Group, AIG and UBS, whose weaknesses also became apparent during the credit crisis.
If anything, God forbid, happened to UBS ... and we have to make a termination payment, it would be massive, she said.
McCoy said he was unwinding the swaps with bond insurer Ambac because its credit rating had been cut.
Swap agreements often allow these contracts to be terminated if ratings fall below certain thresholds. The agency's deal with Ambac was negative by nearly $8.4 million as of June 30.
McCoy said there were no new swaps he wanted the board to approve. (Reporting by Joan Gralla; Editing by Dan Grebler)