GO Pledge for Swaps Eyed

Massachusetts officials are considering extending a general obligation pledge on $800 million of Massachusetts Turnpike Authority swaps to resolve a termination event notice and avoid a $282 million payment to UBS Securities LLC by July 24.

Jay Gonzalez, undersecretary of the Executive Office for Administration and Finance, said Gov. Deval Patrick may ask lawmakers to reinstate a commonwealth GO guarantee on the derivatives, which ended on June 30. MassPike has until July 24 to resolve the issue, he said.

“We’ve been negotiating with UBS. Our authorization from the legislature to issue a guarantee to them to cure the termination event has expired,” Gonzalez said. “We are talking with the legislature about the possibility of extending that legislative authorization and we’re otherwise assessing our options.”

UBS sent MassPike a termination event notice after Standard & Poor’s on June 24 downgraded the swap’s insurer, Ambac Assurance Corp., to BBB from A. Keeping the state’s double-A credit rating on the MassPike swaps prevents a termination payment to UBS.

MassPike also has retained legal services to help the it evaluate potential lawsuits against parties involved in the $800 million swap agreement that the agency entered into in 2001.

“The Turnpike Authority has engaged counsel,” Gonzalez said. “We’ve been looking at these issues. We’re considering all of our options.” He declined to name the law firm that MassPike selected.

According to the request for proposals, duties include “advising the authority on the viability of any potential causes of action against the swap counterparty, financial adviser, insurer, rating agencies, and/or other responsible parties, associated with five floating-to-fixed rate swap agreements entered into by the authority in May 2001.”

Lamont Financial Services Corp. advised MassPike on the derivatives.

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