BRADENTON, Fla. — A newly appointed member of northwest Florida’s Santa Rosa Bay Bridge Authority has filed a complaint with the Securities and Exchange Commission, citing what he calls trading irregularities in some of the agency’s $116 million of defaulted bonds.
David Walby, who will be sworn in as a Bridge Authority board member next month, said that he is concerned because “it looks to me like somebody is overpricing these bonds and selling them to clients.”
The SRBBA defaulted on its bonds July 1 when there was not enough money in reserve to make a payment. Since 2002, the agency has dipped into reserves to supplement debt service payments.
Walby is a former muni bond underwriter who recently stepped down as an arbitrator for the Financial Industry Regulatory Authority. He was appointed to the Bridge Authority board in October, along with two others.
The authority 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.
About $115.9 million of bonds are outstanding because of increasing principal due to accretion of $20 million on the capital appreciation bonds.
While the bonds were not insured at initial pricing, some were insured in the secondary market by various firms. The bonds initially had investment-grade ratings.
Bond proceeds were used to build the 3.5-mile Garcon Point toll bridge in northwest Florida, which has suffered from much lower-than-forecast traffic since it opened in May 1999.
The concerns cited by Walby surround trades made since April on some of the capital appreciation bonds, or CABs, maturing in 2015, which are insured by Radian Asset Assurance Inc., formerly Asset Guaranty Insurance Co.
A customer sold $45,000 of bonds in April for 35 cents on the dollar at a yield of 25.26%.
In September, two interdealer trades totaling $70,000 sold for an average of 44 cents on the dollar.
On Nov. 4, a customer bought $20,000 of bonds for nearly 67 cents on the dollar at a yield of 11.41%.
“It doesn’t make any sense for zero-coupon bonds to be trading at 60 cents on the dollar,” Walby said in an interview Monday, adding that he believes the price is too high on defaulted bonds for which toll revenues may not be available for payment.
However, he acknowledged that some of the higher price may be attributable to insurance.
Radian, which stopped writing municipal bond insurance in 2008, could not be reached for comment by press time.
Walby said he filed a complaint with the SEC about a week ago, and added: “If there is somebody out there buying these bonds cheap and selling them for 100% mark-up, the SEC should look into this and write up some of these companies.”
“These things give us all a black eye,” he said, referring to industry professionals. “People need to raise a flag every now and then with the SEC.”
The SEC already has an ongoing investigation of the Bridge Authority. Last year, the federal regulator sent several board members and staff letters seeking documents regarding disclosure practices and finances. Some were deposed.
Meanwhile, the Bridge Authority’s first meeting in nearly a year is set for Dec. 14. The meeting will be available to interested parties by teleconference. Details are posted on the authority’s website at
Walby is joining forces with Gerry Goldstein, co-owner of a commercial real estate brokerage company and former muni analyst, and Don Richards, a marketing and business development specialist with experience in financial analysis.
With three existing board members, the new additions will provide the authority with a voting quorum. New officers are likely to be elected at next month’s meeting.
In the last year, half the board members resigned after the SEC inquiry began. The authority could not provide them legal assistance because no funds have been available for any purpose other than paying debt service for years. It is also the reason the agency has not produced an audit in many years.
Volunteers agreed to serve on the board recently after the bond trustee, Bank of New York Mellon, agreed to pay for liability insurance, an attorney, and administrative services for up to a year. Getting the authority board recomposed was seen as a way to begin restructuring talks.
The SRBBA bonds are rated D by Fitch Ratings and Standard & Poor’s, and Ca by Moody’s Investors Service.
