Massachusetts lawmakers yesterday were meeting behind closed doors to discuss how to enhance a portion or all of the Massachusetts Turnpike Authority's $2.2 billion of outstanding debt while lawmakers also evaluates four different borrowing plans totaling $9 billion before the legislative session ends on July 31.
Legislative aides said key Senate leaders are mapping out a strategy to address MassPike's financial challenges and debt woes. The House last week gave preliminary approval to Gov. Deval Patrick's initiative to extend the commonwealth's general obligation credit to $2.2 billion of MassPike debt.
The House measure was part of a $3 billion bridge repair bond bill. The Senate Ways and Means Committee last week removed the amendment from the bridge bonding legislation and is now considering the MassPike issue separately.
The backroom debates include Senate President Therese Murray, D-Plymouth, Sen. Mark Montigny, D-Second Bristol and Plymouth, who chairs the Joint Committee on Bonding, Capital Expenditures, and State Assets, Sen. Steven Panagiotakos, D-Middlesex, who chairs Senate Ways and Means, and Joint Committee on Transportation chairman Sen. Steven Baddour, D-Haverhill, among other lawmakers and Patrick administration officials.
Cyndi Roy, a spokeswoman for the governor, said the executive branch continues to work out a strategy to address the authority's debt burdens with the legislature.
"The governor's working with the House and the Senate for a final resolution to that proposal," Roy said.
Critics of Patrick's proposal to offer Massachusetts' double-A GO pledge or its state appropriation guarantee on all or a part of lesser-rated MassPike's debt said that financial and organizational reforms at the authority must take place before the commonwealth extends its credit assistance and that officials should consider aiding just $800 million of the authority's most problematic debt as opposed to the full $2.2 billion.
In addition, Montigny said the issue needs to undergo further evaluation and debate. The senator stressed in a phone interview last week that an end-of-the-month deadline should not push lawmakers towards authorizing a plan that could cause stress to the state's own credit rating by adding additional long-term liability on top of its $29 billion of outstanding debt.
"We do not need to continue to go forward with this full faith and credit guarantee on $2.2 billion. Even doing it for $800 million, we have not carefully vetted this," Montigny said. "The only deadline is an artificial one. If this is an emergency and the markets don't stabilize and [MassPike] can't come up with a solution or there isn't some other interim solution - if that is the case, if we exhaust all of that through research and vetting - then I will become a supporter of this, definitely on a limited level because, if not, you buy the whole monster and [MassPike] is a monster."
The authority's fiscal problems are mounting, with MassPike facing a $70 million to $100 million deficit for the current fiscal year, which began July 1. In addition, MassPike has paid $2.35 million of additional interest because a portion of $800 million of outstanding fixed-rate bonds are attached to five floating-to-fixed-rate swaptions with UBS Securities LLC.
That amount will increase to $2 million each month beginning Jan. 1 when the two remaining swaptions kick in. The swaption mismatch requires the authority to pay a fixed rate on the bonds and a fixed rate on the swaption while receiving 68% of one month of the London Interbank Offered Rate from UBS.
MassPike officials, along with Citi as underwriter, have been working on refinancing the fixed-rate bonds into variable-rate mode to better match the debt with the swaptions. Public Financial Management Inc. is financial adviser and bond counsel is Edwards, Angell, Palmer & Dodge LLP.
The commonwealth carries AA ratings from Fitch Ratings and Standard & Poor's, while Moody's Investors Service rates Massachusetts Aa2. On its own, MassPike carries A3 and Baa1 ratings from Moody's on its senior and subordinated Metropolitan Highway System bonds, respectively. Fitch Ratings rates the $1.3 billion of MHS senior debt BBB-plus and the $968.8 million of subordinated bonds BBB. Standard & Poor's does not rate MassPike.
The $800 million of debt includes Series 1997A for $207.6 million, Series 1997B for $126.7 million, and Series 1999A for $465.6 million. Currently, MassPike pays a fixed rate on the 1997 bonds along with a fixed rate of 4.75%, 4.875%, and 5% to UBS on three separate swaptions while receiving in return 68% of one-month of Libor.
On Jan. 1, the authority will pay not just the fixed rate it currently pays on the 1999 bonds, but also a fixed rate of 4.75% and 5% on the two swaptions attached to those bonds while receiving from UBS 68% of one month Libor.
In addition, Ambac Assurance Corp. insures the five UBS swaptions and if the monoline's credit rating falls to single-A, MassPike would have to pay nearly $180 million to UBS. Moody's rates the insurer Aa3 with a negative outlook while Standard & Poor's assigns its AA rating with a negative watch to Ambac. Fitch recently withdrew its rating on Ambac.
In addition to the debate on MassPike debt, lawmakers are working on four bond bills totaling nearly $9 billion. The $3 billion bridge repair bond bill is ready for a final vote in the Senate before moving onto the House for final approval.
A $2 billion higher educational bond bill yesterday moved out of the House Ways and Means Committee and to the House for preliminary approval. And both a $2.5 billion public building borrowing plan and a $1.4 billion energy and environment bond bill now await initial approval from the Senate after the House gave them preliminary passage.