Massachusetts Lawmakers to Debate Extending Pledge on MassPike Swaps

Massachusetts lawmakers Monday will debate whether to extend the state’s general obligation pledge for a second time on five costly Massachusetts Turnpike Authority derivatives with UBS Securities LLC as counterparty.

A Special House Committee on Transportation will hold a public hearing and is set to vote on the initiative Monday, according to Ashley Allen, spokeswoman for Rep. Joseph Wagner, D-Hampden, who chairs the panel.

An earlier commonwealth GO pledge ended on Jan 15 and the termination cost on the five swaps total nearly $400 million. Gov. Deval Patrick last week filed legislation that would again put that state-level obligation in place and help MassPike avoid the hefty termination payment.

“Since legislation authorizing the guarantee was passed last year, the likelihood that a termination event would occur under the hedging transactions has increased significantly,” Patrick wrote to the legislature on Jan 23. “Consequently, it is important that the commonwealth continue to have the authority to grant the guarantee in the event it is determined to be necessary to avoid the termination of the hedging transactions.”

Earlier this month, UBS retracted its claim that the swap agreement had reached a termination event. The swaps are insured by Ambac Assurance Corp. and are based on the London Interbank Offered Rate.

According to MassPike executive director Alan LeBovidge, a termination event would occur if both Standard & Poor’s and Moody’s Investors Service downgrade Ambac one notch. Standard & Poor’s in November downgraded Ambac to A from AA and assigned a negative outlook. That same month Moody’s dropped the insurer to Baa1 from Aa3 with a developing outlook. Fitch Ratings does not rate Ambac.

 

 

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