The details are mind-numbingly complicated, but it turns out that, due to a brewing perfect storm of factors, the Turnpike Authority may soon find itself on the hook for a loan payment of nearly $400 million. Needless to say, it doesn’t have that kind of cash lying around, so the question of whether the state needs to step in to guarantee the Pike’s massive debt (thereby hopefully staving off the giant payout) was discussed at a Senate hearing yesterday.
The deal involves mysterious instruments called “swaptions,” as well as a bond insurer called Ambac whose share price is currently under a dollar, our bankrupt friends at Lehman Brothers, and the notorious UBS. A true morass. There’s some detail on the transactions here and here, for the truly adventurous.
Perhaps the most depressing aspect of the whole story is this, from the first story linked above:
Despite a light legislative schedule, most Senate committee members did not attend Thursday’s hearing.
Great. Not that this is a pressing issue or anything. (For the record: the members of the Senate Bonding, Capital Expenditures and State Assets Committee are Chairman Montigny, who was there, and Senators Creem, Hart, Donnelly, Michael Moore, and Knapik. Don’t know who was there other than Montigny. A source reports that Chairman Montigny and Senator Donnelly were present. Shame on Senators Creem, Hart, Moore, and Knapik for missing a hearing of this importance.)
Float a bond to pay for it… then use the gas tax to pay the bonds. No?
Didn’t think so. Until the state guarantees the debt, those bonds aren’t worth the paper they’re printed on. Also issuing bonds and selling them takes time, so while this might be a long time solution, it would stave off an immediate large payment.
but I might, betting that the state won’t let the bonds fail. When was the last time a state or a state transit agency bonds failed? I honestly don’t know — I’m not exactly an old pro at muni investing.
“2,339 cases of municipal defaults worth $32.8 billion between 1980 and 2002”
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p>http://www.publicbonds.org/pub…
I specifically wrote “state or a state transit agency” because I know that local bonds fail, but it strikes me as pretty rare for a state or state agency bond to fail.
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p>I’m not arguing that Pike bonds wouldn’t fail, merely that it seems rather rare to me… so I read the link and couldn’t find how many of those 2,339 were state or state transit agency bonds.
They can’t sell bonds. The authority is on the hook, not the State, and the rating agencies won’t touch them. That’s what precipitated the whole crisis in the first place: i) lousy bond market ii) lousy Authority issuing the bonds.
default by June unless tolls are raised, Legislature reluctant to pass gas tax and reorganize Turnpike. They’re rating BBB+. Thanks, I’ve lost enough money this year.
…some legislators never go to their committee meetings. It’s not a priority for most. Unless it’s a huge, well-publicized issue, most of the committee chairs are empty.
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p>You should see how many sit through and listent o the debate during legislative sessions as well.
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p>It would be great if BlueMassGroup could get volunteers to keep track of who shows up at committee hearings and legislative sessions.
It ought to be public record. Attendance put on the web, within 72 hours, XML and all.
And so, until hell freezes over and the lege posts this stuff itself, we will happily accept all tips of this nature! In fact, I just got one — see the updated post.
but I disagree with the “until hell freezes over” stuff. I do think that we can work toward a more open and accountable government, and that a combination of left and right wing might force the hack wing into it.
Dick or Mike?
will the creditor repo the pavement? That should prove interesting.
But i) lenders won’t be so anxious to buy any future turnpike debt and ii) there’s posted collateral (i.e. cash) as of 11/08 of at least $12 million that the lenders will take in lieu of pavement and iii) a serious portion of the Pike future revenues are also collaterized as security on many traunches of bonds issued.
i appreciate the rundown of the facts. thx.
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p>What may happen is that all assets (buildings, vehicles, booths, etc…) become property of UBS and are sold or leased (maybe back to the state)… and that all future revenue ends up going to UBS instead of to the state, until the amount is paid off. The pike falls into disrepair, or is shored up with state funding. Either way, the taxpayer gets it in a most unpleasant fashion… The state will probably pay off the debt, or work a deal with UBS, prior to such drastic actions. Some in the Senate may get their wish to see private ownership/management of the pike…
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p>What worries me is the probability of other such ‘easter eggs’ to be found in the books… If I understand the transactions properly, there was some measure of double dipping that may have relied upon a sweetheart understanding, between Lehman and the pike, to act in concert with UBS. Certainly, the pikes confidence in the options being triggered simultaneously is weird, to say the least. This strikes me less like accounting and more like ‘friends with benefits’ business dealings… Which leaves me with feeling that this tangle isn’t the only twist in the tale. It just doesn’t seem likely that this is an isolated case of competing risk mitigation gone awry… Yuck.
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p>I think any arguments against transportation reform have been eviscerated with this latest ammunition. All well and good, now we just have to do the reform properly…
Well I just have so much to say about that I don’t know where to begin!
Instead of paying this or any other debt, the Turnpike Authority should declare Chapter 11 bankruptcy, which will allow it to reduce its obligations.
but I’m not sure the Pike can file chapter 11. I think they might have to file chapter 9, which is reserved for “municipalities,” including “revenue-producing bodies that provide services which are paid for by users rather than by general taxes, such as bridge authorities, highway authorities, and gas authorities.”
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p>What a bankruptcy filing would mean in terms of the state’s relationship with lenders going forward, I have no idea. It couldn’t be good, which is probably a reason to avoid doing this if at all possible.
Senator Creem, despite living and working relatively close to the State House, has one of the lowest participation rates of any senator — she is rarely in her office and rarely attends hearings. Only formal hearings of the committee she actually chairs and full Senate sessions bring her to the building. Her staff run her office.
the schedule when she was on the Governor’s Council.
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p>Cue Christopher to defend the hard-working, selfless members of the Governor’s Council, without whose valiant and tireless efforts the Commonwealth would surely collapse! 😉
I guess some people are more cut out for the GC schedule after all:) Legislating, on the other hand should be full time.
Look, I have no idea what the time breakdown of Sen Creem is, nor what it should be. What I do know:
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p>She attends Democratic Town Committee meetings.
Her office returns my telephone calls and letters.
She advocates for progressive legislation on the Senate side.
She’s got my vote.
Just wondering.
I don’t know what else she had on her plate that day. Prior commitment? Conflicting requirement?
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p>I wish she was there, sure. But, without knowing where she was instead, it’s hard for me to say she should have been there…