Creditor backs off on Turnpike debt

Officials persuaded financial giant UBS to back off a threat to collect an immediate $71 million lump sum from the toll agency. The payment had been feared for about a year as a result of a complex 2001 financial deal known as a swaption - one of several the agency entered into with UBS - that turned sour amid problems with the international credit markets and the Turnpike Authority’s poor credit rating.

At one point, the agency was in danger of owing at least $260 million in immediate cash on these deals that it had no ability to pay.

Jay Gonzalez, secretary for administration and finance, negotiated with the banks and the credit rating agencies to avoid the large payments. He persuaded them that a reorganization of the state’s transportation system, as well as a $100 million annual infusion from the Legislature, had bolstered the Turnpike Authority’s credit rating enough to ensure it would be able to pay off future bond obligations.

The overhaul in the state’s transportation system eliminates the Turnpike Authority at the end of this month, but the new Massachusetts Department of Transportation remains responsible for paying its debts, which total more than $2 billion.

“It’s certainly great news to not, on top of the fiscal challenges we’ve been facing, have to figure out how to pay UBS $260 million,’’ Gonzalez said.

The UBS swaption deals - involving the trading of interest rates - may no longer pose a catastrophic threat, but they could continue to cost the turnpike tens of millions of dollars in monthly payments. The authority budgeted $36 million for payments this year alone.

Gonzalez and others are hoping that yesterday’s news, combined with loosening in international credit markets, will allow the Department of Transportation to refinance debt to hedge against the current losses. Depending on how much debt the agency is able to refinance, it could mitigate some, if not all, of the cost.

The initial deals were made when the Turnpike Authority was struggling for cash to pay off spiraling Big Dig costs. They generated $29.1 million at the time, but have since been criticized as too risky and complex for a government entity, and ultimately, too costly.

Gonzalez said the state has since added safeguards, including a committee of financial experts to review government transactions, to prevent agencies and authorities from entering agreements hastily or without a full understanding of their implications.

“I’m hoping that the state learned something from this experience,’’ said Mary Z. Connaughton, a member of the soon-to-be-dissolved turnpike authority board. “You can’t push off a problem to a future administration, and that’s exactly what happened with these swaptions in 2001.’’

Senator Mark C. Montigny, a New Bedford Democrat who has been a longtime critic of the complex financing deals, said he remains troubled that the Patrick administration has resisted a thorough investigation into the origins of the deals, pointing out that they have already cost millions of dollars.

“They’re so complex and there’s so many hands dirty,’’ he said. “From start to finish, this has been a lousy deal.’’

UBS spokesman Doug Morris said in a statement that the company is pleased with the latest resolution and looks forward to dealing with the new Massachusetts Department of Transportation when it assumes responsibility for the deals.

Noah Bierman can be reached at nbierman@globe.com.