Pike faces $400M payment after credit downgrade

The troubled Massachusetts Turnpike Authority - just days away from a potential $100 million toll hike - could face a $400 million lump sum payment after the bond rating for the agency’s insurer was downgraded today.

The downgrade means UBS, a Swiss financial company that lent the Pike $29 million, can demand a $397 million payment as part of a risky bond agreement.

UBS spokesman Doug Morris had no immediate comment on the downgrade.

UBS officials tried to demand the payment in January, but eventually backed off because the credit rating of the Pike’s insurer, Ambac Financial Group, hadn’t dropped far enough.

Standard & Poors Rating Services, one of the leading rating agencies in the country, cut Ambac’s rating to just above junk status hours ago.

The one-time payment would be a serious blow to the already shaky fiscal balance at the Pike. It also means an unpopular toll hike - thought to be staved off by a 25 percent sales tax increase - may still be necessary.

The state moved to extend its credit to the agency this year, but that credit ends on June 30.

Pike officials hastily postponed tomorrow’s meeting where board members were expected to vote on a $100 million toll hike scheduled for July 1st.

“The Administration continues to analyze the very complex transportation reform bill and budget sent to the Governor by the Legislature,” said Transportation Secretary Jim Aloisi in a statement. “Given the time needed to determine whether these bills meet the long term needs of the Commonwealth, it is both prudent and respectful to postpone the Turnpike’s Board meeting until next Monday.”

LORI'S COLUMN: Swaptions: A train wreck coming down the Pike (Marblehead Reporter, The Swampscott Reporter, Blue Mass Group The Patriot Ledger and The Salem News)

The current transportation debate has put a spotlight on how we restore and protect the integrity of our transportation system but should also illuminate the road that brought us here — specifically, the amount of risk accepted by our agencies and the integrity of the decision-making process. (continued)

***Of interest and related to the piece above, this from Conde Nast's Portfolio.com: Keeping the US out of UBS

Snowe, speaking at an emotional Senate Finance Committee hearing, urged the Treasury Department to track its cash flow to make sure that money AIG is paying to clients is not going to "banks that promote tax evasion."

She said that AIG had paid $800 million to UBS, one of the financial institutions with which it had a trading relationship in credit default swaps. The insurance giant also paid $1.7 billion - in taxpayer dollars, of course - to UBS as part of its securities lending program.

UBS paid $782 million in taxes and penalties to settle federal government charges that it helped U.S. tax dodgers hide vast sums in its secret bank accounts. Snowe said that the Treasury lost $220 million in taxes because of UBS's actions, which involved as many as 52,000 undeclared accounts with about $14.8 billion in assets.