Bad news from the ratings agencies: a second downgrade to the Turnpike Authority’s bond insurer has strengthened the hand of UBS, who seems now to be well within its rights to demand a “termination payment” on its swaptions agreements with the Pike. The value of the payment is unclear, but seems to be somewhere between $250 million and $400 million.
BMGers may recall that recently-enacted legislation put the full faith and credit of the state behind the Turnpike’s obligations to UBS. Doing so was seen as a stopgap measure to prevent UBS from declaring a default while the parties try negotiate some sort of arrangement. But that guarantee expires next week, and apparently the negotiations haven’t gone anywhere. It’s as yet unclear whether the state will extend the guarantee, but it may not matter — UBS can still demand its termination payment.
There seems to be a real dearth of good options. If UBS makes its demand, the state has to come with something like $300 million, which at the very least means toll increases despite the tax hikes in the budget. Hard to see what leverage the state holds over UBS, except for the possibility of putting the Turnpike into Chapter 9 bankruptcy. Perhaps that should be seriously considered.
What a mess.
tedf says
This may be reason for the governor to reconsider approving the transportation reform bill. I don’t know the details, but I imagine that if the Turnpike Authority is abolished, its debts become the obligations of the Commonwealth or of some other solvent state agency. All of this assumes, of course, that UBS would let the state guarantee expire without making a demand for payment.
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p>Does the Commonwealth or the MTA have grounds for a lawsuit that would put enforcement of the debt in question?
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p>TedF
bostonshepherd says
I can hear it now:
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p>”These swaptions are illegal.”
“Well, then they should be illegal.”
“Ok, they’re legal but they’re too complicated.”
“We didn’t know what we were signing.”
“We forgot to check with out attorney.”
“Wasn’t there supposed to be a recision period?”
“We were defrauded!”
“We waz robbed.”
“It’s Bush’s fault.”
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p>Why not just default on the repayment, work it out in bankruptcy court? It’s time for the MTA (and the MBTA) to call it a day. Take down the tolls, layoff everyone, and raise the gas tax.
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p>Can this state and its rogue, out-of-control authorities humiliate us tax payers any more?
woburndem says
16 years of Republican administrations could not get it done. As a matter of fact wasn’t it under their watch that the Swaptions were written. Doesn’t would be Republican nominee Christy Mihos ring a bell as a member of the MTA.
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p>Isn’t it now a Democrat named Deval Patrick that has the spine and the will to demand reform.
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p>Hummmm interesting a Democrat gets the job done!
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p>As Usual just my Opinion!
pbrane says
I mean, clearly it’s all those republicans in the legislature that opposed the dismantling of thew Pike over the years so their hack friends and relatives could keep their jobs.
bostonshepherd says
Deval Patrick hasn’t gotten the job done yet. There are many more Dem-hack relatives at the MTA than Repubs, so I expect Beacon Hill will, as usual, run interference to keep the Pike in operation.
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p>I want the Pike ELIMINATED, not just subsumed into Mass Highway. The point is to eliminate the excess.
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p>Raise those lost toll revenues (29 cents net for each toll dollar collected) by raising the gas tax. How many people does it tax to collect gas tax receipts? Five?
pbrane says
The tolls and MTA should have been eliminated years ago. I know Romney tried and got nowhere with the legislature. I don’t recall if Weld/Celluci/Swift tried to kill it as well. It’s completely gratuitous to pat the dems on the back for this, especially since the tolls are still there. Until the tolls come down its a name change. And still nothing has been done to address the the long term transportation issues facing the state.
woburndem says
Remeber the reason why Jane Swift was never elected on her own????? Try Firing Christy Mihos from the Turnpike board!!!! hummmmm seems that the Legislature was not the road block then. And who was the head of the state when the debt of the big dig was shifted to the Turnpike and the MBTA Celluci/ Romney with the treasurer Joe MALONE. So lets see who ran up the debt? Not he legislature, who shifted to the Authorities the debt? Not the Legislature. Who allowed the Creation of Swaptions to hide the debt from the public? Not the legislature. Check carefully the dates and most of all the FACTS.
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p>As of this evening with a few minor hitches it appears that the Legislature with the cooperation of Governor Deval Patrick are about to sign transportation REFORM.
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p>I think you need to get your republican talking points in order and revised to reflect reality. Republicans Leaderships inaction and fancy financing have, in fact, saddled us with the Turnpike Authority swimming in red ink and a near bankrupt T as a result of shifted debt. 16 years worth of a Dung heap and Deval moves it in 2 and a half years. Not bad not bad for a Democrat with the help of a Democrat lead legislature!
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p>As Usual just my Opinion
pbrane says
Any links to support? You may be right, but please back up your statements.
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p>Who created the authority and who alone can “reform” it?
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p>Are you denying that Romney proposed to kill the MTA and the leg told him to pound sand? Why was that?
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p>What good are these reforms if the tolls are still there and the transportation budget isn’t funded?
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p>I am not a republican (or a democrat) and am happy to blame anyone that contributed to this cluster f#ck. It is absurd to claim this as some form of heroism by the dems.
somervilletom says
Each claim Ed made is well-known. Those of us who lived through the period remember each episode. More than one “D” is there because it is the only way to get elected to the Massachusetts legislature in too many towns, regardless of one’s politics. I’m not claiming any kind of “heroism” on the part of the Dem’s, and neither did Ed.
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p>I am, instead, supporting Ed when he observes — rather calmly — that it was, in fact, sixteen years of Republican “leadership” from the corner office that created the symptoms that we are seeing today, with the passive assent of too many DINOs.
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p>When the lung-cancer patient finally starts coughing, the problem is the long history of smoking, not yesterday’s pollen. The bulk of today’s problem with MBTA financing is the result of forward-funding and Big Dig debt service — both spear-headed by Governor Celluci in collusion with Mr. Finneran.
pbrane says
The claims aren’t that well known to me, sorry. If they are so obvious it should be easy to find a few links to support them.
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p>
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p>The point of the whole post was that R govs couldn’t get it done but we finally got a D gov and look what happened (which of course ignores the core issue of the Pike being independent from the executive branch and subject only to legislative authority).
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p>Why didn’t getting rid of the MTA get done when Romney proposed it?
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p>http://www.boston.com/news/loc…
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p>Frankly, to me this is not about R and D, it is about leadership and protecting the public trust. What has been done recently is a small start but until actual reforms (take down the tolls, eliminate redundant positions, increase the gas tax to fund the transportation needs of the state, etc.) occur it is another political shell game with little value.
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p>If you want to play the R and D game, don’t you have to go back to the mid-80’s when the original Pike bonds came due and the tolls were supposed to be abolished? Who put the kiebash on that? If that happens as scheduled we aren’t having this discussion at all, are we?
bostonshepherd says
Why not use this default to dismantle the Pike once and for all and increase the gas tax? Heck, only 29 cents on each dollar of toll collected is free cash flow, so why not increase the gas tax sufficiently to raise that gross amount?
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p>71% “postage and handling?”
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p>Take the tolls down. Raise the gas tax.