BRADENTON, Fla. — Bank of New York Mellon has begun distributing some payments to investors holding $131.2 million of defaulted bonds issued by Florida’s Santa Rosa Bay Bridge Authority.
Partial payments, based on the bond resolution and available toll revenues, are expected to be made periodically, according to a noticed by BNY Mellon posted on the Municipal Securities Rulemaking Board’s EMMA disclosure website earlier this month.
What happens next is unknown since the board overseeing the SRBBA remains in limbo without a quorum of members to meet. It is not clear if Gov. Rick Scott and the Santa Rosa County Commission will appoint new board members.
Morgan Lamb, chairman of the board, said last week that no one has acted to appoint replacements to the board.
BNY Mellon, which funded the board’s liability insurance last year, released funding for a new policy this year “although it was late,” Lamb said.
One board member resigned at the end of last year because liability insurance ran out.
On Jan. 1, BNY Mellon accelerated debt payments due to ongoing defaults, and declared $131.2 million of bonds due to be paid immediately.
The Santa Rosa Bay Bridge Authority is now the largest issuer in default of its municipal bonds this year, according to research by Bank of America Merrill Lynch.
The authority’s defaulted debt represents more than half of the total amount in default across the country.
Acceleration allows the trustee to make regular distributions to all bondholders from the revenues that become available, which include investors holding current interest bonds and capital appreciation bonds.
It paid out $6.6 million Jan. 1.
The move could also be part of a legal strategy to prepare for the next step in resolving the ongoing default, according to a bond attorney.
Accelerating the debt puts investors in a “stronger position” than they would have been otherwise, the attorney said. “It may put them in position to proceed to court or elsewhere to compel someone to be appointed.”
Remedies available to bondholders are located in the bond indenture, which spells out circumstances in which legal action can be taken.
“There may be an advantage to having all the debt due and payable for any position [bondholders] might want to pursue,” said the attorney. “When people prepare for a fight in a workout situation, acceleration is one step that is taken to be ready.”
The SRBBA was created by the Legislature in 1984 as a corporate body and an independent agency of the state.
In 1996, the authority sold $75.5 million of uninsured current-interest term bonds maturing in 2028, and $19.4 million of capital appreciation bonds maturing in 2022, to build the 3.5-mile Garcon Point toll bridge in northwest Florida.
The bonds had investment-grade ratings when they were sold, and some were insured in the secondary market. The non-recourse debt is payable solely from the toll revenues of the bridge.
Toll revenue has been far less than projected almost since the bridge opened in 1999.
After eating up reserves, the authority experienced its first payment default in July 2011.
Today, the bonds are rated D by Fitch Ratings and Standard & Poor’s. Moody’s Investors Service withdrew its Ca rating last year saying it had inadequate information to support the maintenance of a rating.
Bondholders who participated in Bridge Authority meetings the past few years said they believed that the state would come to their rescue because the Florida Department of Transportation has a lease-purchase agreement to provide operations and maintenance on the bridge over the life of the bonds.
Once the bonds are paid off, the Transportation Department will own the bridge and then can begin collecting its subordinate payments for a $7.9 million toll facility trust fund loan the Bridge Authority received, as well as operations and maintenance costs, which totaled $24.7 million as of June 30, 2011.
Accelerating the bonds places investors first in line to be paid, before the state, the bond attorney said.
FDOT has not commented on the current situation.
In June 2011, Transportation Secretary Ananth Prasad issued a terse statement about the agency’s position regarding the SRBBA’s bonds.
“Make no mistake, we will not bailout this investment by the bondholders,” Prasad said. “However, let me be clear: FDOT will continue to safely operate and maintain the Garcon Point Bridge.
“The bond documents clearly advised investors that neither the state of Florida nor Santa Rosa County would have any responsibility for payment of the bond debt.”
Prasad said it costs about $1 million annually to maintain the bridge, which is paid from FDOT’s budget.
The Bridge Authority’s financial problems have been well documented over the years, though the state has not stepped in to consult with the board about its finances as it has done with some local governments.
In 1997, duties of the Florida Transportation Commission were expanded to include additional oversight of various agencies, including the Santa Rosa Bay Bridge Authority.
Since then, the commission’s annual monitoring reports to the governor have detailed operating deficiencies as well as bond covenant violations and defaults.
For years, the authority has not prepared required annual audits, which must be submitted to the state and bondholders.
FDOT stopped providing compilation reports on toll collections in fiscal 2011, though monthly toll collections are provided on the Bridge Authority’s website at www.garconpointbridge.com.
In November 2010, the Securities and Exchange Commission requested numerous SRBBA documents, and took testimony from the chairman, vice chairman, general counsel, and FDOT’s administrative assistant.
There has been no public information about the SEC’s inquiry since.
Meanwhile, the Bridge Authority’s defaulted bonds continue to trade.
Last week, a customer sold $20,000 of current interest bonds for nearly 42 cents on the dollar.
The bonds were originally sold in 1996 with an interest rate of 6.25% and a single maturity date in 2028.
A portion of the current interest bonds were insured in the secondary market by ACA Financial Guaranty Corp., and are trading at higher values.
Last week, a customer bought $10,000 of ACA-insured current interest bonds for 66 cents on the dollar.
Some of the capital appreciation bonds continue to trade actively, particularly those insured in the secondary.
On Feb. 8, a customer bought $20,000 of CABs maturing in 2019 and were insured by National Public Finance Guarantee Corp. for 69 cents on the dollar to yield 5.7%.
A $20,000 block of uninsured CABs maturing in 2022 was bought by a customer Dec. 5 at 15 cents on the dollar.
The capital appreciation bonds sold for an initial offering price of 18 cents on the dollar in 1996.