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.