DRPA paying big for its interest-rate swaps

The Delaware River Port Authority continued to pay for its past financial adventures yesterday, even as it prepared to borrow an additional $510 million for new spending.

The board yesterday voted to refinance $528 million of its $1.15 billion of debt. The move was designed to limit costs created by deals made nearly a decade ago to fund controversial economic-development projects such as sports stadiums, museums, and concert halls.

"Interest-rate swaps" made in 2000 and 2001 provided the DRPA with $45 million, but the deals spawned $242 million in liabilities that are beginning to come due.

"It's a long and expensive process to clean up" the debt arrangements, chief executive John Matheussen said yesterday.

The use of the exotic financial instruments was criticized by a representative for board member Jack Wagner, the Pennsylvania auditor general. Wagner is a Democratic candidate for governor.

"We cannot support the use of swaps," said Wagner's representative, Nykia Smith. "We urge the board not to continue the use of swap options."

In Harrisburg yesterday, Wagner called for a ban on swaps by government bodies, saying their use "amounts to gambling with public money."

The current DRPA board and administration have not dealt in interest-rate swaps, chief financial officer John Hanson said.

"We share your trepidation in the use of these types of vehicles," Hanson told Smith.

An interest-rate swap is an agreement between parties to exchange one stream of interest payments for another over a set period. They usually involve the exchange of a fixed-rate payment for a variable-rate payment.

Swaps were attractive when interest rates on variable-rate bonds and notes were low compared with fixed-rate bonds and notes. They allowed public agencies to take advantage of the lower rates while, in theory, providing a hedge against large increases in those rates.

However, the collapse of financial markets exposed the agencies to unanticipated risks - and millions of dollars in losses.

The DRPA has paid $13 million to settle one swap contract and is going to pay about $40 million to terminate another, Hanson said.

The board yesterday also paved the way for borrowing up to $510 million to pay for repairs to the PATCO train cars and agency's four Delaware River bridges.

Tolls on the Benjamin Franklin, Walt Whitman, Commodore Barry, and Betsy Ross Bridges were raised last year to pay off the bonds that will be issued soon. They are scheduled to be raised again - to $5 - in September.

Drivers now pay about $240 million a year in bridge tolls to the DRPA.

The board yesterday authorized the agency to use direct bank loans and two new bond types created by the federal stimulus law this year, as well as standard municipal bonds, to raise the $510 million.

The additional borrowing would increase the DRPA's total debt to about $1.65 billion.

The authority has a higher debt burden, compared with its income, than any other toll-collecting agency in the region. The biggest expense in its 2009 operating budget - $117 million, or 41 percent - is earmarked for payments on its debt.

The board will vote on its 2010 budget Dec. 9. The amount of the budget has not been determined.