Independent Massachusetts bonding authorities would no longer have the power to enter into derivative transactions if lawmakers approve, as amended, a bill to help the Massachusetts Turnpike Authority ward off a potential $350 million termination-event fee.
The bill would not restrict the state treasury department from entering into swap agreements.
Senators on Thursday gave the legislation initial approval by a vote of 33 to 5. The bill will need to receive final approval in the Senate after moving through the House.
The legislation comes as Fitch Ratings Thursday removed MassPike from negative watch and affirmed its more than of $1.2 billion Metropolitan Highway System senior bonds at BBB-plus and its $960 million of MHS subordinate debt at BBB. The outlook is negative.
Moody's Investors Service assigns a Baa2 to the MHS senior-lien bonds and a Baa3 to the MHS subordiante debt with a developing outlook.
Sen. Mark Montigny, D-New Bedford, Thursday filed an amendment, incorporated into the bill, that would prohibit independent and quasi-public state agencies from entering into swap agreements, require all state authorities and the Treasury Department to disclose borrowing practices and list details of their current derivative transactions, and organize a special task force to examine all of MassPike's fiscal obligations and contracts.
In addition, the amendment would require the state treasurer's and governor's approval in extending credit to MassPike.
Montigny tagged the amendment onto a bill that would extend the state's double-A general obligation pledge onto five floating-to-fixed-rate MassPike swaps with UBS Securities LLC. That credit boost would starve off a possible termination event that may cost the authority roughly $350 million.
If Standard & Poor's downgrades Ambac Assurance Corp. by one notch, MassPike will face a termination event. Standard & Poor's rates the monoline A with a negative outlook. Moody's Tuesday placed the Baa1 monoline on review for possible downgrade based on a deterioration of Ambac's capital position.
MassPike officials are also currently reviewing legal options in a potential suit against the parties involved in the UBS swaps.
The bill now moves on to the House, which last month gave initial approval of the measure without amendments.
Montigny's amendment would ban independent state agencies from entering into swap agreements.
"As of the effective date of this act no quasi-public state entity or independent authority of the commonwealth shall be authorized to enter into any derivative financial transaction as defined in this act," according to the amendment.
On the Senate floor, Montigny told his fellow members that his amendment is needed if the state is to inherit the swap risks of the UBS derivatives. All authorities should disclose their debt activities, including derivatives, he said, adding that a special task force needs to examine MassPike's liabilities.
"This sordid history needs to be fully transparent before we can fix it," Montigny said.
