Ambac Financial Group Inc (AMBC)

[Seminole Red]

NEW YORK, June 30 (Reuters) - UBS (UBSN.VX) and the Massachusetts Turnpike on Tuesday said they were still negotiating over how to handle a swap agreement guaranteed by insurer Ambac (ABK.N) now that it has been downgraded.

Moody's Investors Service said in a statement it was reviewing the impact of the Ambac downgrade, noting that if the Turnpike were forced to end the swap as a result, it was estimated at a negative $282 million as of June 29.

Legislation that allows Massachusetts to negotiate over replacing Ambac as a guarantor in the swap expires on June 30, Moody's said.

A Massachusetts Turnpike spokesman noted that it has more time to find a solution: 30 days after UBS sent its termination notice, which occurred on June 24.

"We're continuing to negotiate with UBS; we haven't been able to come to mutually acceptable terms," she said.

Asked if the Turnpike could afford the payment, she noted that the swap's value has turned more in its favor. It previously was valued at "something close" to negative $400 million, the spokeswoman said.

UBS said in a statement: "UBS continues to work with the Massachusetts Turnpike Authority, the Commonwealth of Massachusetts and Ambac to find a mutually acceptable solution with respect to the swaps."

An Ambac spokesman noted the insurer would have to pay up if the swap is ended and the Turnpike lacks the money. "It's our insured and the swap termination is our obligation if the Massachusetts Turnpike is unable to."

Moody's also said it was evaluating its ratings for the Massachusetts Turnpike Authority in the wake of a new law that abolishes the authority and makes the state transportation authority its "successor."

Moody's said the rating outlook on the Massachusetts Turnpike Authority's Baa2 senior lien bonds and its Baa3 subordinated lien revenue bonds remains developing.

The law becomes effective Nov. 1, 2009. (Reporting by Caryn Trokie, Tom Ryan and Joan Gralla; Editing by Padraic Cassidy and Dan Grebler