Swap agreements continue to plague the Massachusetts Turnpike Authority, as the agency would need to pay approximately $450 million in combined termination fees in the event of further credit rating downgrades.

The largest and costliest collection of swaps include five floating-to-fixed-rate derivatives with UBS Securities LLC based on the London Interbank Offered Rate.

The termination fee for those swaps combined is roughly $350 million, which MassPike would need to pay if Ambac Assurance Corp., the insurer on the swaps, experiences another downgrade.

On Nov. 19, Standard & Poor's downgraded the monoline to A from AA, and assigned a negative outlook. On Nov. 6, Moody's Investors Service downgraded Ambac to Baa1 from Aa3. The outlook is developing.

On the bright side, Massachusetts in August agreed to extend its double-A general obligation rating on the five UBS swaps to help ward off a potential termination payment. That GO guarantee is in effect until Jan. 15, but lawmakers said they would take the issue up again in the new session, according to Alan LeBovidge, MassPike's executive director.

"So if something happened to Ambac, [the state] could step in and say, 'UBS, we support the Pike's swaps and therefore our credit rating, which is double-A, is sufficient,' " he said.

Since January, the authority has been working on refinancing $800 million of fixed-rate bonds into variable-rate mode to better match the debt with the five UBS floating-to-fixed-rate swaps. However, market conditions have stalled that transaction, even after the state agreed to extend its appropriation pledge on the deal to help MassPike at market. Massachusetts' appropriation pledge is one notch below its double-A ratings, which is higher than the authority's triple-B credit ratings.

MassPike officials selected four underwriters - Morgan Stanley, JPMorgan, Citi, and Banc of America Securities LLC - to price $200 million each of the refinancing deal. The authority has yet to determine a pricing date.

In addition to the UBS swaps, MassPike has five fixed-to-floating-rate Bond Market Association swaptions with Lehman Brothers Special Financing Inc. Those swaptions are uninsured and do not carry the state's GO or appropriation pledge. If MassPike's credit rating were to drop to below investment grade, that event would trigger a termination in which the authority would pay roughly $75 million to Lehman.

MassPike officials have also needed to allocate $19 million in a reserve fund relating to a JPMorgan swap agreement, another strain on the authority's operations.

Keeping MassPike's ratings at investment grade is paramount and board members earlier this month agreed to toll hikes to bring in $100 million of additional revenue to help keep debt service coverage at levels stipulated in bond agreements and support needed maintenance projects.

"Obviously one of the driving reasons - and people forget this - why we we're looking to raise tolls is the toll money we're raising, by the way, is to go for capital," LeBovidge said. "But the bond rating agencies, Fitch and Moody's, who we deal with are like, 'Okay guys, show us you have a plan to meet all this deferred maintenance,' so that was the reason for the proposed toll increase."

Lawmakers have spoken out against the toll increase, which could go into effect in February or March after several public hearings and a final board vote.

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