Financial instability affects toll finances in Massachusetts and WV

Massachusetts Turnpike is talking most about it, but a number of toll authorities are facing higher financing costs or difficulties associated with turmoil in the financial markets. The Mass Turnpike Authority today delayed refinancing $127m of 'auction rate' Big Dig borrowings because of doubts about the strength of Ambac, one of the big bond insurers.

The Mass Pike is especially exposed to higher financing costs because of an interest rate swap authorized under then Turnpike chief executive Matt Amorello. Tens of millions of dollars were gained in upfront money in return for committing to variable or auction derived interest rates with UBS when the Turnpike was raising money for the untolled Big Dig. The deal was insured by Ambac.

The Turnpike is having trouble undoing the Amorello swaps.

Ambac insured auction rate securities have been tough to sell lately even at double digit interest rates. A financial consultant told the Turnpike Authority board today: "The entire universe is selling auction-rate securities."

The immediate problem for the Turnpike Authority is that under the 'swaps' UBS can exercise an option that leaves the Turnpike short of nearly $4m/year on each $127m tranche of auction rate debt on a $2 billion borrowing never backed by any new toll revenues.

$6m of bond insurance payments to Ambac on one tranche are now worth little to the Turnpike because Ambac's own ratings have been cut.

Turnpike Authority chief executive Alan LeBovidge said at the board meeting today the swap securities are their "biggest short term problem."

Authority board member and accounting professor Mary Connaughton told us the Turnpike faces major financial problems because of past mistakes in financing of the Big Dig which she called "an ongoing saga". She says the Authority needs legislative support to make tough decisions on both revenue and cost sides of its accounts.

As an immediate measure Connaughton favors restoration of car tolls on the western end of the Turnpike (Exits 1 to 6) Springfield to the New York border and at Exit 16 in West Newton in the Boston area. These tolls were removed on the order of then Governor William Weld in 1996, who did a made-for-TV news stunt of personally swinging a sledgehammer at the Exit 16 toll infrastructure.

The western toll plazas remain untouched and are staffed 24/7 to collect tolls from trucks. Weld's political opportunism 12 years ago has had salaried toll collectors waving car drivers through without collecting a toll ever since.

Saving money by going electronic

CEO LeBovidge also said today the Turnpike is converting four toll lanes from manual to transponders at an annual saving of $125k/year each, and looking to do more conversions to electronic tolling - costs being under 10c/transaction vs nearly 30c for manual collection.

West Virginia too

The West Virginia Turnpike's monthly meeting also heard that financing costs are likely to rise with downratings of its bond insurer Financial Guarantee Insurance Corp.

TOLLROADSnews 2008-02-19