Florida Toll Bridge Agency in Dire Straits

BRADENTON, Fla. — The Santa Rosa Bay Bridge Authority could deplete its debt-service reserve in the current fiscal year, which could result in a payment default next July, Florida Department of Transportation officials said Wednesday.

The authority is the second toll agency in the Southeast that is in severe financial trouble.

The Santa Rosa authority's rating sank deeper into junk territory last week when Moody's Investors Service downgraded the northwest Florida toll bridge to Caa3 from B3 and maintained a negative outlook.

But that is just one problem facing the SRBBA, a special independent district of the state that in 1996 sold $75.5 million of Series A current interest bonds maturing in 2028 and $19.4 million of Series B capital appreciation bonds maturing between 2005 and 2028.

Proceeds were used to build the 3.5-mile-long tolled Garcon Point Bridge, which has suffered from much lower-than-forecast traffic since it opened in May 1999 requiring draws on debt service reserves since 2002.

Lower-than-anticipated revenue collections, impacted further by the recession, are now being affected by the oil disaster in the Gulf of Mexico that "resulted in the fouling of the Santa Rosa Island shoreline," the authority's traffic consultant, URS Corp., said in a July 17 letter.

URS said it believed bridge traffic and revenue would be down for several months. Because drivers could have "greater sensitivity" to toll increases at this time, the firm recommended that the authority delay until January a Garcon Point Bridge toll increase, to provide time to assess the oil spill's impact on traffic.

"We're concerned about a potential default at this rating level on payment on the bonds," Moody's analyst Maria Matesanz said. "In this part of the state, they've been slower to recover from the general economic recession and now that's compounded by recent events in the Gulf."

Adding to those problems is the fact that there are free, alternate routes drivers can use, Matesanz pointed out in a rating report.

While FDOT operates and maintains the bridge, the state agency is not responsible for the SRBBA's debt.

It is not a full faith and credit of the state, said Marsha Johnson, director of the department's Office of Financial Development.

"We are not in a financial situation to assume the debt or anything like that," she said.

Indicating the severity of the SRBBA's financial situation Johnson said: "We understand they did not have the money to buy stamps to mail out notices for the board meetings."

The state Division of Bond Finance, which sells FDOT's bonds, is reviewing the authority's problems, Johnson said.

The SRBBA has ongoing bond-covenant violations, including not providing audited financial statements for several years. It has violated debt-service coverage requirements for years.

Coverage in fiscal 2009 was 0.52 times while the required level is 1.2 times.

Draws on debt service reserves have occurred since 2002 without required replenishments.

The authority has failed to notify the market about the lack of financial information and rating changes as required by the Securities and Exchange Commission's Rule 15c2-12, according to a review of notices posted on the Municipal Securities Rulemaking Board's Electronic Municipal Market Access system.

FDOT provides a financial "compilation" as a courtesy to the authority, Johnson said. But those compilations are only available on the department's website.

While the bond trustee has filed notices about draws on the debt service reserve to make payments, no material event notice was filed on EMMA concerning the action by Fitch Ratings on June 28 downgrading the authority's rating to C from CCC.

While it was not a rating change requiring market notification, Standard & Poor's affirmed its CC rating and negative outlook on June 15.

There is a similarity between the SRBBA and the Connector 2000 Association Inc.'s toll road in South Carolina that filed for bankruptcy protection in June owing about $369 million on senior and subordinate debt.

The Connector is a 16-mile toll road in Greenville that opened in March 2001 but its revenues never came close to the initial traffic estimates, similar to the the Garcon Point Bridge.

One major difference between the two, however, is that the Connector posted regular audited financial statements and material event notices.

"The SRBBA dedicates all of its revenues to the payment of debt service on outstanding bonds and has no funds available to provide for administrative expenses, including the preparation of financial statements and engagement of an independent auditor," according to a May 24 monitoring report by the Florida Transportation Commission.

The FTC also said there was "inadequate governance" of the authority and that material event notices have not been properly filed.

The seven-person SRBBA board is missing two members and went for a year without meeting.

It is not clear if the agency has discussed bankruptcy or if Florida would allow such as drastic step to occur.

The authority's board chairman, Garnett Breeding, could not be reached for comment.

Breeding discussed ongoing financial problems in a letter to the FTC May 3, including a claim that the board's attorney proposed refinancing the bonds in 2007 but those "efforts were stopped by financial advisers for the FDOT."

Johnson said she was aware of Breeding's letter, but not familiar with any efforts to prevent the SRBBA from refinancing its bonds.

Breeding's letter also said that of the $96 million of bonds sold, only $55 million was necessary to build the Garcon Point Bridge.

Some $30 million of the additional cost was for environmental mitigation to construct a 19-acre wetland.

"The $30 million of environmental penalty was a price that would haunt us for many years and I believe was destined to be too high of a price to pay for the footprint of the bridge," he wrote.

"Please help us solve what seems to be an insurmountable financial problem and the unthinkable 'default,' " Breeding's letter concluded.

The authority board is scheduled to meet Wednesday. The agenda includes discussion about cash flow, traffic and revenue, and a bond payment.

The SRBBA's problems are affecting its bonds trading in the secondary market, according to EMMA.

A block of Series A bonds traded on Aug. 3 at 45.25 cents on the dollar to yield 15.23% compared to the original price of 96.64 cents with a yield of 6.25%.

The last activity on a 2022 maturity of the Series B bonds was March 17, when they traded at 22.67 cents on the dollar to yield 12.46% compared to the initial offering price of 17.94 cents.



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