Mar
26

Former Bear Stears exec, MTA debt expert named CFO

By

The MTA announced this morning that former Bear Sterns executive and MTA debt expert Robert Foran has been the authority’s new Chief Financial Officer. The Harvard MBA is taking over the position at a time when the agency is rife with financial strife and facing a debt crisis of historic proportions.

“Bob’s expertise in municipal finance is unparalleled and his experience with the MTA means that he will hit the ground running,” MTA Chairman and CEO Jay H. Walder said in a statement. “His arrival will be critical in helping guide the MTA through one of the most difficult financial periods in its history.”

Foran is taking over from Gary Dellaverson who stepped down in January. Although the MTA’s own release didn’t contain much on Foran’s background, Business Week’s Martin Z. Braun profiled the new CFO in an extensive article published today. In one sense, Foran is coming in to help clean up a debt situation he helped to create. Writes Braun:

When the MTA faced a $4 billion gap in its five-year capital program in 2000 after voters rejected a transportation bond measure, Foran and Bear Stearns engineered a debt restructuring that allowed the agency to continue to finance long-term projects such as the Second Avenue subway without raising fares. “The question was, was there a way to raise that capital with the existing resources that the MTA had, because Albany was not going to give them any more money,” Foran said.

Bear Stearns’s role drew criticism in a New York Times article after his bank earned tens of millions of dollars in underwriting fees for advising the MTA on the restructuring. Budget watchers such as Brecher also said the financing reduced debt service costs in the short run while pushing expenses into the future…Both Walder and Foran said the restructuring should be judged as a success because it raised the MTA’s revenue-bond credit rating to A from BBB+ and lowered borrowing costs.

While debt service costs were shifted to the future, the financing freed up enough revenue so the MTA could issue $3 billion of new debt and release $1 billion of reserve funds, Foran said. The agency’s overall debt-service burden did increase because the average life of the borrowings increased, said Foran.

“The $4 billion additional debt that we were able to sell was for assets that were going to have lives much much longer than 30 years,” he said.

Last month, the MTA had the credit rating on more than $12 billion of bonds cut by Moody’s Investors Service to A3, the fourth-lowest investment grade, from A2 with a negative outlook, after the agency said it may collect $350 million less than projected from a new payroll tax. The MTA has $28.6 billion of outstanding debt.

Despite this seemingly daunting task, Foran told Business Week that he is up for the job. “I know the MTA probably better than any other client that I worked with,” he said, “and I think the greatest value I can add is to work with the MTA right now.”

With the agency staring down a $751 million gap in its operating budget and a $10 billion funding gap in its next five-year capital plan, Foran will have to hit the ground running. The future of transportation in New York City is in his hands.



Categories : MTA Economics

18 Responses to “Former Bear Stears exec, MTA debt expert named CFO”

  1. Josh K says:

    It seems like after Albany’s pay cuts over the years, the MTA has just about maxed out it’s credit cards.

  2. SEAN says:

    Oh sure, just what we need a Wall Street wise guy trying to fix the mess that his former employer & other finantial companies created.

    Sounds like the get out of debt scam adds you here on radio & see on tv. Most of them are part of the very banks that caused the current finantial crisis in the first place.

    So why should this hireing be perceived any differently?

    • He didn’t create this mess. He helped the MTA survive through what could have been a worse mess. This should be perceived differently because he’s not a scam artists; he’s a CPA with an MBA who actually knows what he’s doing.

      • SEAN says:

        It doesn’t matter if he wasn’t personally responsible for the MTA’s finantial condition, but he had to be aware of it. beyond that, as a Bear Sterns employee he had to have insight on the companies finances as a CPA. Failure at either of these renders him unfit for the job.

        Sorry for getting a bit tough on this issue, but I’ve been doing a lot of reading on the banking cryses & his former employer was a casualty of it.

        • What you’re saying doesn’t make consistent sense though. Bear Stearns was a casualty, but how does that make Foran, an expert an MTA financing, bad for the job? Isn’t the idea to bring on people who have a clue about their jobs instead of some political patronage appointee type who doesn’t know where the subway even goes?

          • SEAN says:

            Isn’t the idea to bring on people who have a clue about their jobs instead of some political patronage appointee type who doesn’t know where the subway even goes?

            Yes, but is Foran the only person in New York qualified for this job? It looks like the fox is guarding the henhouse by appointing someone from the very company who aranged the finantial quagmire the MTA finds itself in.

            He personally may not have had is hands in this, but had to have some knowledge of what was comeing down the road. And how perfect this just happends to work out.

          • Michael Merchant says:

            Foran became an expert on MTA finances by pushing them to refinance $20 billion in 2002. He got the deal thanks to well-placed political contributions, and all the deal accomplished was to put off debt payments to create space to borrow even more. Now the piper must be paid, and the saps at MTA are rewarding him by giving him a shot at a very cushy government pension, which will give him a six-figure fixed income not subject to market swings, balancing out his seven figure retirement portfolio, earned from the massive fees he collected on that deal. Brilliant!

            • SEAN says:

              At least someone else gets it.

              Thanks.

            • So basically, the MTA had two options. I’m over-simplifying, but here:

              1. Pay off all debt when it comes due and go broke and collapse.

              2. Restructure so that debt payments come due in the future over a longer period of time, but the downside is that the agency will have pay more due to interest.

              Foran helped them with option two, and without that restructuring, the agency would have been in worse trouble earlier. I realize, as Niccolo points out, that in defending him, I’m sounding more than a bit naive and willing to give him a chance, but I think you’re being too harsh on him.

              The last MTA CFO was a lawyer who specialized in labor relations. Who’s more qualified?

              • Michael Merchant says:

                One problem: you’re presenting a false choice, because Option 1 as you present it – going broke, collapse, etc. – was not the case in 2002.

                Foran sold them on the idea that they could push debt out, and fill in the space they created with more debt and that way they could pay for capital projects without having to ask Albany for any money at that point in time, leaving it to a future administration to worry about it. It’s like taking out a home-equity loan to pay off your credit card so you borrow more with that credit card, figuring that paying off the home-equity loan would be a matter of crossing that bridge when you got there.

                As for qualifications, no doubt, he’s better suited than the prior guy. But his track record speaks for itself – and I haven’t even started on his involvement in the massive 1998 LIPA restructuring. Notice a trend? His advice to his “clients” always seemed to involve borrowing up to your eyeballs. But no, I’m sure that the fact that his pay depending on how much borrowing was involved had no influence on his advice.

                • SEAN says:

                  Michael,

                  I couldn’t say it better, that was an excelent description

                  Ben,

                  I love this blog & agree with you most of the time, but I think you might want to read a bit more on the finantial crisis at hand & how it impacts the MTA.

                  My Budget 360 & sites like that are a good starting point. This way you can derive answers to problems without being dependent on the political spin machine.

    • Russell Warshay says:

      Andrew Cuomo had more to with the current mess than anyone on all Street:
      http://www.villagevoice.com/20.....eddie-mac/

  3. Niccolo Machiavelli says:

    It went down like this; Governor Pataki wanted to avoid raising fares. And he succeeded. Fares did not go up for many years. Part of the reason why was that this restructuring deal enabled him to do it.
    Unfortunately, these Bonds at some point have to be paid off. Selling bonds at the top of the business cycle will leave you paying them off at the trough. Bond reserve funds were emptied of their cash. Debt coming due was pushed out and dumped on Pataki’s successor. And Bear Stearns made $13million according to some reports.

    Read what the Citizen’s Budget Commission said about this deal. It wasn’t complimentary. Bear Stearns also sold the MTA plenty of derivatives that are – and have been – under water. Mr. Foran was Bear Stearn’s banker to the MTA for all of this. It’s hard not to be cynical about this appointment.

    I yield to no one in my cynicism, but I’m just an anonymous commenter herein. My cynicism would be substantial diminished were you, as the journalist here, to demonstrate just a little more skepticism. Politics is everywhere, as natural, maybe more so, as the air we breathe. There is politics in this appointment and the big bond players whether Bear Stearns, or Goldman Sachs have a huge stake in who carries this portfolio at the MTA.

    Still, I’m happy for the guy just like for the few station agents who get to keep their jobs. Keeping employment up is important to rebuilding consumer confidence and getting people to swipe those credit cards. This is a pretty good gig for the guy, its hard to find financial types who didn’t leave some fingerprints on the financial crisis.

    • Michael Merchant says:

      “Still, I’m happy for the guy just like for the few station agents who get to keep their jobs. Keeping employment up is important to rebuilding consumer confidence”

      With all due respect, that’s a bit silly. We’re talking about one guy, so his getting hired doesn’t affect overall employment one whit, especially since he was already employed at another firm.

      “This is a pretty good gig for the guy”

      That’s for sure. I do have a question: will his current firm be allowed to continue to do business with MTA? Seems like a tremendous conflict of interest

  4. MikeM says:

    It’s a Bloomberg wire story man, not a BusinessWeek piece.

    It’s an Bloomberg story the locals should’ve picked up on, though.

  5. Niccolo Machiavelli says:

    “that’s a bit silly”
    Yes it is, I stand convicted. I try to use silliness to offset my cynicism, sometimes it works sometimes it doesn’t. Actually the macroeconomic effects of anyone, even a thousand station agents losing their jobs, is sort of small. Still, no snow flake in an avalanche feels responsible.

    The more serious question is “will his current firm be allowed to continue to do business with MTA?” I’m thinking yes, though he may have to occasionally “recuse” himself as the board members have to do from time to time. There are not many sources of finance capital, its a smaller and smaller world after all. I’m thinking he has many connections in the trading world that will enjoy him being on the board. Nothing underhanded or unethical I’m sure, but if they happen to run into each other at the open bar at a Cuomo fundraiser, or two, or three, or on the back nine on Bethpage Black, I’m sure nothing unethical would transpire, just some technocrats doing their thing, keepin on keepin on.

  6. Christian Quinones says:

    Im Sorry To Those Who I Offend But To Me This Is The “Deal”:

    MTA Is Addicted To Failure …
    Pure And Simple.

    If They Were As Fiscally Conservative As They Claim To Be We Would Not Be In The Hot Mess That We Are In.

    I Hate To Say This …
    But They Need MONEY.

    In Return For any money that they get from this point on should be conditional.

    – SELL ALL non core assets. meaning anything and everything that has nothing to do with With running a train and bus business.

    – Reduce Executive pay to a bare minimum of $100,000.

    – Eliminate All “Perks” Such As Free Metrocards And EZ Passes For Executives.

    – SELL ALL “risky” Investments and instead make REAL CONSERVATIVE investments.

    – When They Do Get MONEY it should be used ONLY to cover ALL debt that they owe.

    – Eliminate the daily metro card and weekly, keep the bi-weekly and monthly metrocards AT a reduced Price to re-build revenue.

    – Eliminate Fare “bonus'” to build revenue.

    do all these things as a condition to recieving any public funds whether on a city, state, or federal level.

    I Know it’s bitter sweet but in the end the MTA should pay the brunt of it.

    IF and i use that word extremely loosely, They really care about salvaging their finances and what little there is of their reputation, i feel that this is how it should be done.

    it is NOT a quick fix but down the line in the future when i turn 50 i dont want to pay $1,000 just to see my grand kids and spend another $1000 to get back home.

    And I’m 32, now.

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