Investors who own bonds issued by the bankrupt Connector 2000 Association Inc. toll road have tentatively reached an agreement with the issuer and South Carolina to exchange their outstanding debt for new bonds.
The restructuring has dragged on for more than a year, and started even before the association defaulted in January as expected. Bondholders have been wrangling with the state over how to divide up the lower-than-anticipated toll revenues. Traffic on the 16-mile toll road around Greenville has fallen short of expectations in all nine years of its existence.
A plan filed with the U.S. Bankruptcy Court of South Carolina in late November would cut the authority's outstanding debt by more than half and would give the state greater access to the toll road's revenues. If bondholders and the bankruptcy court agree to the plan, the debt exchange could take place in March, sources said.
A disclosure hearing has been scheduled for Jan. 5 in Spartanburg. A vote by the bondholders could take place in February, sources said, speaking on the condition of anonymity because the restructuring is not final.
The plan has won support from the South Carolina Department of Transportation. The DOT had complained that its subordinate lien on toll revenues would never allow it to receive enough funds to service the road. State officials argued bondholders were getting the toll revenues, albeit revised lower, while the state would end up using taxpayer funds to pay for maintenance.
The DOT had filed an objection to the Connector's Chapter 9 bankruptcy, arguing that the toll road was not a municipality. A hearing on the Chapter 9 validity has been stayed as a result of this restructuring plan.
In 1998, the association issued Series A and B senior bonds plus Series C subordinate-lien bonds. The value of the bonds totaled $329 million, according to bankruptcy claims filed by the trustee banks. In all, the plan reduces the association's debt outstanding to $148 million.
Under the plan, the DOT's position in the "waterfall" of toll revenues is moved up so that it will receive some revenues before bondholders are paid. Overall, the DOT will get 10% of toll revenues, or up to $82 million over 40 years. The DOT said it needs $10.4 million annually for maintenance.
The plan calls for three new tiers of debt. The first two tiers will be exchanged for the senior bonds outstanding.
There will be 120 new CUSIPs for bonds that will mature serially from 2012 to 2051. Final maturity on the debt has been extended by 12 years.
Each owner of a senior bond will get a package of new bonds consisting of their share of tier 1 and 2 bonds.
For example, according to the restructuring template submitted with the workout plan, the current senior-lien bonds maturing in 2038 have an accreted principal value of $47.2 million. Those bonds will be exchanged for new debt comprised of portions of all the aggregate debt and will have a principal amount of $29.4 million.
Subordinate bondholders would be entitled to tier 3 bonds. According to the plan, an outstanding subordinate-lien bond maturing in 2038 would see its principal reduced to $71,982 from $3.1 million.
The new bonds will not be rated and will not need new offering documents, a source said.
The debt workout got complicated because the Connector's Series B and C bonds include capital appreciation, zero-coupon bonds that pay interest when the bonds mature. Bondholders felt they could never sell their bonds if the maturities of these two series were simply extended, so they sought this serial structure.
Some of the Connector's bonds continue to trade. This week, senior bonds maturing in 2038 traded for 15 cents on the dollar, according to data on the Municipal Securities Rulemaking Board's EMMA website. The same bonds traded for about 40 cents to the dollar two years ago.
U.S. Bank NA, the trustee for the senior debt, notified bondholders that they have until Dec. 28 to file an objection to the disclosure documents.
Dennis J. Drebsky is an attorney with Nixon Peabody LLP representing HSBC Bank USA NA, the trustee bank for subordinate bondholders that have claims of $90.9 million. He confirmed that the bondholders have been notified.
While the plan may restructure the debt, it cannot generate more traffic on the road. The creditors are still stuck with a toll road that generates less revenue than forecast.
The current plan is based on toll revenue projections estimated in a May 2009 study conducted by Stantec Consulting Services Inc. For the 2009 calendar year, the toll road generated $525 million in revenue, or $340,000 below the Stantec estimate for the year. Through November 2010, the toll road collected $4.49 million in tolls. It needs to make $920,000 in December to meet its Stantec estimate for the year, a monthly total it has never reached in its history.
The toll rate paid in cash for a two-axle vehicle is currently $1.25. The rate is scheduled to increase to $1.50 beginning in 2012.
