For Immediate Release - April 05, 2010


Rating Agencies Upgrade Turnpike Bonds Following Reform, Paving Way for Savings

BOSTON - Monday, April 5, 2010 - The Patrick-Murray Administration today announced that the Massachusetts Department of Transportation 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 and 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.

"These upgrades will allow us to build on transportation reform's success in shoring up transportation finance while taking advantage of today's historically low interest rates," said Governor Deval Patrick. "Today, taxpayers and toll payers begin to reap the benefit as millions of dollars now paying debt will instead pay for transportation services."

"This is a clear indication that our transportation reform is helping Massachusetts move in a positive direction," said Lieutenant Governor Timothy Murray. "Through these upgraded bond ratings we will see significant savings and improved services for our taxpayers."

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.

"This opportunity to reduce our debt costs is directly attributed to transportation reform, which led to the improved bond ratings that make the finance plan possible. We continue to work hard on lowering our costs wherever we can," said MassDOT Secretary and CEO Jeffrey Mullan.

"The rating upgrades on the former Turnpike's bonds, the resulting finance plan, and today's refinancing to reduce MassDOT debt costs are a direct result of transportation reform and months of work last year by the Governor, the legislature, and Transportation and Finance leaders to reach agreements that continue to save Commonwealth taxpayers millions of dollars," said Administration and Finance Secretary Jay Gonzalez.

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.

Bond Ratings on Massachusetts Turnpike Authority Bonds, Subordinate Lien and Senior Lien, Before and After Reform

Prior to Reform*

After Reform
# of notches changed
Moody'sBaa3Aa3 stable6
S&Pn/aAA stablen/a
FitchBBB negativeAA stable7
Moody'sBaa2A3 stable2
S&Pn/aA stablen/a
FitchBBB+ negativeA+ stable3

*Prior to August 3, 2009

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