MassDOT Reform: Debt Refinance Saves Millions

The Patrick-Murray Administration today announced that MassDOT executed the first in a series of bond refinancings that will save the Commonwealth more than $30 million annually.  In addition, MassDOT has received significant ratings upgrades on the former Massachusetts Turnpike Authority bonds, allowing access to capital markets for the first time in years. 

Last week's bond sale refinanced $325.7 million of former Turnpike debt at lower interest rates, saving tollpayers $13 million on a present value basis, or more than $20 million over the next 25 years.  This sale would not have been possible without bond rating upgrades announced recently by Moody's, Standard and Poor's, and Fitch. The bond rating upgrades are a direct result of the Administration's Transportation Reform, which eliminated the Massachusetts Turnpike Authority, overhauled the state's transportation bureaucracy and will allow the Commonwealth and MassDOT to refund $800 million of decade old swaption-related bonds related to the Big Dig, saving taxpayer funds. No new funds are being borrowed during this refinance. 

Learn more about the reform savings.  Governor Patrick's transportation reform plan is here.

According to Fitch, the new transportation reform law, coupled with the Commonwealth's financial support, means MassDOT "now has a larger window of financial flexibility than has existed in the past decade." The result is improved bond market access and lower borrowing costs, meaning the Commonwealth can save money while continuing to make critical investments in our roads, bridges, and public transit system.

In March, the MassDOT Board approved a plan to refinance as much as $2.275 billion of the former Turnpike Authority's Metropolitan Highway System Revenue Bonds at lower interest rates to dramatically reduce transportation debt service costs.  Included are bonds related to risky financial transactions, "swaptions", originally entered into by the former Turnpike Authority.  By refinancing the swaption-related bonds, MassDOT will save an estimated $2.5 million per month.

The swaptions were originally signed by the Turnpike Authority in 2001, when UBS paid the Turnpike $23 million to enter into contracts with a notional value of $800 million. The $23 million was used to finance the Big Dig, but the swaptions ultimately exposed the Commonwealth to substantial risk. Last year, the Authority was at direct risk of having to pay UBS $261 million.  Transportation Reform legislation signed by Governor Patrick in June 2009 improved the Authority's bond rating, eliminating the need to pay $190 million of that amount.  A follow-up settlement with UBS negotiated in July 2009 saved the additional $71 million following the July rating upgrade of the Turnpike Authority's MHS senior bonds to A-.   In addition, Governor Patrick working with the legislature signed into law a bill that authorized the Commonwealth to extend its backing to the Turnpike swaptions in the event it became necessary to avoid termination of the swaptions. The Commonwealth's demonstrated willingness to step in was a critical factor in securing the rating upgrades.