MassPike Toll Vote Possible as Officials Weigh Dismantling Agency

The Massachusetts Turnpike Authority could vote on potential toll increases this Friday to help offset growing debt service costs as state officials continue to map out legislation that would allow MassPike to be dismantled and folded into two other agencies.

Massachusetts Gov. Deval Patrick, a Democrat, and his administration have been discussing ending MassPike for more than a year. The idea was first raised by former Gov. Mitt Romney.

Current plans include the Massachusetts Highway Department managing a stretch of the 138-mile Western Turnpike that runs west of the greater Boston metropolitan area and also eliminating most tolls on that roadway.

In addition, the Massachusetts Port Authority would oversee the Metropolitan Highway System, which runs through the Boston area and includes the Central Artery project, also known as the Big Dig.

MassPike's executive director, Alan LeBovidge, said that officials in the Executive Office for Administration and Finance are working on how to deal with $2.2 billion of outstanding MHS bonds and $162 million of outstanding Western Turnpike debt, as dismantling MassPike would require other entities to absorb the debt.

"I can best categorize that as a work in progress," LeBovidge said. "The debt on the [Western Turnpike] is not an issue because that's $162 million and [the state can] either keep carrying it or refinance it or whatever they want to do. The big issue is on MHS and there's a group working on how to best handle that. Obviously, the bondholders have to be paid and how to best structure that and deal with it. That's not something that I've been involved with."

LeBovidge said because the plan includes eliminating most Western Turnpike tolls, which currently help support debt service payments on the $162 million of debt, the commonwealth may add those bonds onto its books.

"I'm sure the state can deal with that amount of debt," LeBovidge said. "On the MHS, that's $2.2 billion so that's a different magnitude of issue that needs to be examined."

The commonwealth has $29 billion of outstanding debt, which Fitch Ratings and Standard & Poor's rate AA. Moody's Investors Service assigns its Aa2 rating to the state. MassPort has approximately $1.2 billion of outstanding parity debt that carries AA and AA-minus ratings from Fitch and Standard & Poor's, respectively. Moody's rates the credit Aa3.

Conversely, MassPike's MHS credit ratings fall below MassPort's and the state's credit ratings. Fitch and Moody's rate $1.27 billion of MHS senior-lien debt BBB-plus and Baa2, respectively. Roughly $953 million of subordinate bonds carry a BBB rating from Fitch and a Baa3 rating from Moody's.

Fitch placed the MHS debt on negative watch on Sept. 9 and Moody's changed its outlook on the senior and subordinate bonds to developing from negative on Oct. 2 after downgrading the credit. Standard & Poor's does not rate MassPike.

Those credit changes reflect immediate challenges for the authority, including debt service costs that will increase by $30 million in 2009, according to LeBovidge. In addition, MassPike officials have been working on refinancing $800 million of fixed-rate debt into variable-rate mode to better match five floating-to-fixed-rate swaptions with UBS AG. By Jan. 1, all of the swaptions will kick in, forcing the authority to pay roughly $2 million, per month, in additional interest rates.

"We're hopeful by then to be able to get back into the market with a state guarantee that would allow us to access the credit markets, although on any given day, you tell me - can you get into the credit markets?" LeBovidge said.

To address the additional $30 million of debt service costs, MassPike's board will discuss, and potentially vote on, toll increases on the MHS that would generate at least $60 million of added revenue for the authority.

"We put it on for discussion, but I feel pretty confident that a vote will be proposed," LeBovidge said.

Toll increases and the $800 million refinancing would help the authority meet swelling debt service payments, yet state officials are working on dismantling MassPike in order to save money over the long term. Spokespeople for the Patrick administration referred all questions to MassPike on the issue of terminating the authority.

MassPort spokeswoman Danny Levy said the authority is working with the Patrick administration on how best the agency could take over MassPike assets, which would require MassPort board approval. Incorporating any portion of MassPike into the Massachusetts Highway Department requires legislation, which could be filed as early as January.

While officials like Sen. Mark Montigny, D-Second Bristol and Plymouth, who chairs the Joint Committee on Bonding, Capital Expenditures, and State Assets, and MassPike board member Mary Connaughton said they support terminating MassPike - depending upon what happens to the outstanding bonds - Fitch analyst Mike McDermott stressed that the authority must deal with the growing debt issues.

"They're at the point where something needs to be done," McDermott said. "Whether the commonwealth decides to take both MHS and the [Western Turnpike], whether it's to put part of it in MassPort and keep the other part in the Highway Department, or whether it's to push through a toll increase that allows it to stay efficient, there's a number of different ways that they can do this, it's just that they're nearing the point where something needs to be done."

For reprint and licensing requests for this article, click here.
Transportation industry
MORE FROM BOND BUYER