Massachusetts Considering Bill to Guarantee MassPike Debt

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Massachusetts lawmakers are considering legislation that would allow the commonwealth to extend its financial guarantee on $2.2 billion of Massachusetts Turnpike Authority debt - a move that would allow the authority to use the state's higher credit rating yet at the same time increase its outstanding bond obligation.

The Senate Ways and Means Committee today will hold a public hearing on the measure after House members passed the initiative on Tuesday after including it as an amendment to a $3 billion bond bill to support bridge repair.

The legislation includes the state granting its full faith and credit pledge to $2.2 billion of MassPike debt, a portion of which helped finance the Central Artery Project called the Big Dig. That plan is good news for MassPike as it would give the authority a higher credit rating on its bonds as it prepares to refund about $800 million of debt attached to five floating-to-fixed-rate swaptions with UBS Securities LLC as counterparty that have cost the authority additional interest payments.

Standard & Poor's and Fitch Ratings rate the Bay State AA and Moody's Investors Service assigns its Aa2 rating. Those ratings are higher than MassPike's credit. On its own, the authority carries A3 and Baa1 ratings from Moody's on its senior and subordinated Metropolitan Highway System bonds, respectively. Fitch 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 credit markets have been so difficult that the refunding hasn't gone through," said Mary Connaughton, a MassPike board member. "And the hope was that with the improved rating provided by the state that it will facilitate the refinancing which in particular would address the UBS swaption that was exercised. …