Fears legislative meddling in Mass Pike could trigger financial collapse

There are fears that legislative meddling in the the proposed toll increases approved by the board of the Massachusetts Turnpike could trigger default orders and calls against about $500m in borrowings. This week Turnpike CEO Alan LeBovidge issued a statement in which he said that the Turnpike's liabilities under three shaky swap contracts have "skyrocketed" to $447m. And the numbers change every day, most often upward.

The toll increases voted this month will stabilize the Turnpike's financial situation and limit its exposure to one of the contracts. However LeBovidge says any further downgrade of bond insurer Ambac will give the Turnpike's lender UBS the right to call about $350m.

The Boston Globe is reporting moves by legislators to block the Turnpike board's toll increases pending debate on the Turnpike's future. Toll increases were approved in a 4/1 vote Nov 13 and would increase annual revenues on the metropolitan segment of the Turnpike by about $90m/year from $175m at present to $265m - by about 50%.

Transponder tolls at the Allston and Weston mainline plazas will go from $1.00 to $1.50 and at the harbor tunnels tolled westbound only (CORRECTION) from $3.00 to $6.00. The dissenter on the board, Mary Connaughton, supports toll increases but somewhat smaller ones than those approved by the majority.

A legislative freeze on toll rates would strengthen the Turnpike's creditors in calling loans, because the loan agreements are based on the untrammeled right of the Turnpike board to set tolls.

The Turnpike's finances are in a crisis because of decisions in the late 1990s:

(1)  to attempt to finance some $2 billion of Big Dig work with borrowings unsupported by any new revenue stream such as tolls on the principal Big Dig artery I-93

(2) to engage in dicey short-term swap contracts with major international banks in order to get cash advances

CEO LeBovidge says Turnpike inherited "ill-advised deals"

Turnpike CEO LeBovidge said this week:

"As a result of ill advised financial deals that the MTA (Massachusetts Turnpike Authority) entered into by previous administrations and current volatility in the bond markets, the Turnpike’s liabilities relative to three so-called swap agreements has skyrocketed to $447 million.

"While the recent toll increase will stabilize the Turnpikes finances and limit its exposure in one of these swap deals, there is still exposure of upwards of $350 million in termination payments that could be triggered if Ambac, the troubled insurer of the UBS deal, is downgraded further."

If the Turnpike's credit rating drops holders of Turnpike paper from Lehmans could call $76m.

The worst of the swap agreements were entered into when James Kerasiotes, Andrew Natsios and J Richard Capka were Turnpike chiefs between 1999 and 2002. Kerasiotes was a newspaperman, and Natsios a state politician.

Natsios went on to a career in managing foreign aid. Kerasiotes is reported to have a business that does recruitment for senior positions.

"The Brownie of highways"

Capka came to the Mass Pike after 29 years in the Army Corps of Engineers, the oddball Pentagon engineering outfit responsible for shipping channels and which presided over the flood levies that collapsed in New Orleans.

A youthful looking, quiet-spoken man Capka has degrees in engineering and business administration. He had critics. Senator John Kerry said during confirmation hearings for Capka at the Federal Highway Administration that Capka would be "the Brownie of highways" a reference to Michael Brown (famously addressed "Brownie" by Pres Bush) the sunny but clueless chief of the federal emergency management agency FEMA during Hurricane Katrina.

Capka was federal highway administrator from 2006 to early 2008, when he joined a DC lobbying firm, Dawson & Associates.

Whoever it was that 'dun them' the Turnpike is now grappling with the fallout from several very dumb Brownie style deals. At the time of course these were smugly celebrated as smart "innovatory finance."

ADDITION: A Mass Pike source who researched the matter says that those responsible when the expensive swaps were executed were:

- 1999 JP Morgan swap: James Kerasiotes CEO

- 2001 UBS swap: Richard Capka CEO, David Forsberg chairman

- 2002 Lehman Bros swap: Matt Amorello chairman & CEO

- 2004 another Lehmans swap: Matt Amorello chairman & CEO

The initiation of swaps and other 'creative financing' began during a period of rapid turnover of Turnpike CEOs followed by the long dark years of Amorello when the Turnpike was operated almost as a private business of Amorello who doubled as chairman and CEO - no public financial reports, no scheduled board meetings, no published agenda or minutes.

NOTE: Natsios was not involved by this account.

TOLLROADSnews 2008-11-25 ADDITION 2008-11-27 09:00