BRADENTON, Fla. — South Carolina federal bankruptcy Judge David Duncan last week approved a plan allowing investors who want to trade their Connector 2000 Association term bonds to exchange them.
The private nonprofit operator of the Southern Connector toll road filed for bankruptcy in June 2010. The agency’s 1998 bonds were restructured as part of the confirmation plan, and new bonds were issued last year.
Duncan’s order covers $113.5 million of term bonds structured with a pro-rata redemption feature to provide investors with an equal share of the cash flow.
After the distribution of the 2011 bonds, bondholders advised the Connector that the pro-rata term bonds did not conform to broker’s trading platforms and were effectively untradeable, according to a market notice filed in February by the trustee, U.S. Bank NA.
The trustee worked for months to resolve the issue with DTC and the association, according to U.S. Bank.
The Connector agreed to initiate a second exchange of the bonds after receiving requests from a majority of 2011 term bondholders.
The new term bonds will be issued using by-lot redemptions, which will allow them to be registered by Depository Trust Co. at maturity value. The new structure will also permit the term bonds to be entered into the broker’s trading and pricing systems to facilitate trading.
While the exchange is characterized as mandatory, bondholders will have the right to keep their current bonds and CUSIP numbers with pro-rata payments. Bondholders who do not want to give up their existing bonds must opt out of the exchange.
Those who opt out must retain all of their bonds as originally structured. The exchange will not be offered again.
Bondholders who take advantage of the exchange will receive new CUSIPs.
The trustee could not be reached for comment Monday about the schedule for offering the exchange.
The judge’s order said that a package will be sent to bondholders through DTC. Notices also will be posted on the Municipal Securities Rulemaking Board’s EMMA electronic filing system and the Connector’s website.
The Connector Association sold $66.2 million of Series A senior current-interest bonds, $87.4 million of Series B senior capital-appreciation bonds and $46.6 million of Series C subordinate capital-appreciation bonds in 1998 to build the 16-mile-long Southern Connector start-up toll road near Greenville.
The toll road opened eight months early in March 2001 but never came close to meeting traffic and revenue projections. The association defaulted on the bonds in January 2010 and filed for bankruptcy about six months later. In the Chapter 9 case, the outstanding debt was reduced to $150 million from $329 million.
