U.S. transit agencies need financial help: Reps

WASHINGTON (Reuters) - Two Congressional leaders on Wednesday called on the U.S. Treasury and Federal Reserve to open the $700 billion government rescue package to the country's transit agencies, which they said are at risk of losing up to $16 billion.

As many as 30 transit agencies are at risk of default or collapse due to financing deals with certain banks, Rep. James Oberstar, a Minnesota Democrat, and Rep. John Mica, a Florida Republican, wrote to the country's economic leaders.

"Although the U.S. Department of Transportation has limited information, it is our understanding that the public transit sector's total exposure from these deals could be up to $16 billion and may significantly impact 25 metropolitan areas in 17 states across the nation," they wrote.

"According to individual transit agency estimates, approximately $1.5 billion to $4 billion of these deals are immediately at risk," they added.

Calling the situation "unprecedented," the two leaders of the U.S. House of Representatives' Transportation and Infrastructure Committee said the Treasury should use its new authority to buy distressed securities to "help the transit agencies resolve this issue."

Under the contracts for the deals, their private guarantors had to maintain high credit ratings. Insurance company American International Group acted as guarantor to many of the transactions, and when it lost its "AAA" credit rating, the agencies were in technical default of the agreement, according to the letter.

"These defaults -- if processed -- could cost some of the nation's largest transit agencies hundreds of millions of dollars, and could threaten their very existence and the financial stability of the state and local governments that fund them," the Representatives wrote.

Transit agencies would have to pay penalties in the event of actual defaults.

"We feel that, yes, there is a real threat here. Should there be an actual default we would have to come up with a termination payment of $40 million," said Jim Allison, a spokesman for the Bay Area Rapid Transit System, a San Francisco-region rail service.

Covering the payments could force transit systems to cut payrolls, increase fares and reduce service, but revenue sources such as sales taxes would not be affected so their credit ratings would not be immediately threatened.

"For the most part, is this catastrophic for bond holders? No," said Amy Doppelt, a managing director at Fitch Ratings.

The economic stabilization act created a facility known as TARP, for Troubled Asset Relief Program, in which the federal government buys up distressed securities.

The Representatives also noted that the government recently became a stakeholder in AIG, and said the federal government should address the issue as "AIG has been the recipient of considerable assistance from the Treasury."

AIG was not immediately available to comment.

Rep. Peter DeFazio, an Oregon Democrat, also joined the call to help the agencies.

A spokesman for the infrastructure committee said that the letter was supposed to be sent on Thursday, but concerns that bubbled up during a day-long hearing on economic recovery compelled the Representatives to send it a day early.

(Reporting by Lisa Lambert and Joan Gralla in New York and Jim Christie in San Francisco)