BRADENTON, Fla. — The Santa Rosa Bay Bridge Authority in northwest Florida has been notified that its guaranteed investment-contract provider wants to terminate its contract, according to authority attorney Roy Andrews.
WestLB AG recently sent a letter indicating it believes that since the authority is in technical default on its bonds, it also is in default on its GIC contract, Andrews told the agency’s board during a meeting Wednesday.
The Bridge Authority has dipped into reserves to help with debt service payments and the bond indenture requires that reserves be replenished in 12 equal installments.
Andrews indicated that there was a prior agreement with WestLB to delay replenishment of the reserves until this November. But the authority is not expected to have the funds to begin replenishment in November, he said.
“The authority never has had the revenues to replenish those reserves,” he said. “We have been in technical default since 2001.”
Andrews said he disagreed with WestLB’s interpretation and he has asked the bank to honor the GIC contract.
Construction bond proceeds, sinking and reserve funds are often invested in GICs. Andrews could not be reached for comment about what funds the authority invested in the WestLB GIC.
WestLB could not be reached for comment.
“The good news just keeps coming,” a meeting attendee said.
The authority and bondholders are concerned because reserves could be depleted in the current fiscal year resulting in a payment default next July.
The authority is 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. There is also a free alternate route for drivers to use.
The bonds were rated above investment grade when sold but they have been considered junk by all three major rating agencies for some time. The bonds are trading well under 50 cents on the dollar.
Traffic levels in recent months have declined further because of the economy, the Gulf oil spill, and tourism dropping off, authority chairman Garnett Breeding said at Wednesday’s meeting.
The board voted to have its attorney contact BP — which leased the well that caused the oil spill — to find out the process it should use to file a claim.
Some board members expressed frustration that they were unable to lower tolls or do other things to increase traffic and that there is no executive director and no funds for administrative expenses. They often cited bond documents, and covenant restrictions, for limiting their ability to take action.
Bondholders monitoring the meeting by telephone also voiced frustrated that no action was being taken to avoid the inevitable next July.
“You guys are not talking about the real problem here,” said a man who identified himself as Daniel Doyle, a bondholder.
Doyle said the problem is that debt service payments increased when the authority started repaying principal a number of years ago, yet reserves continued to be tapped and nothing was done to restructure the bonds.
Now default is looming, he said, pointing out that the Connector 2000 toll road in South Carolina filed for Chapter 9 municipal bankruptcy in June.
“That’s what’s going to have to happen” with Santa Rosa, Doyle said.
Some speakers felt that the Florida Department of Transportation should take a lead in resolving the debt problems because it is responsible for operations and maintenance, and once the bonds are paid off, FDOT becomes the owner of the bridge.
Default would be “a lousy black eye” for the department, one man said.
The board’s attorney suggested that large bondholders should organize to come up with a restructuring plan or they could take possession of the bridge. He also said bankruptcy is a possibility.
“The bond documents did not address what you do when you go broke,” Breeding said. “We’re waiting for direction from the state, from DOT, from the bondholders.”
An FDOT representative at the meeting said the state Division of Bond Finance has been asked to determine if the authority has any options.
The meeting provided little new information for bondholders, said Jay Abrams, chief municipal credit analyst for FMSbonds.
Abrams said his firm or some of its clients own the authority’s bonds and bondholders may feel frustrated because there were no answers about how to avoid the looming payment default.
“I feel bondholders will feel the state does have a responsibility toward the bridge and toward the bondholders. They certainly have the responsibility to help fix the situation,” Abrams said.
While the possibility of bankruptcy was mentioned, the authority board “just seemed to say this is going to have to be a bondholder-driven solution,” he said. “We’re considering what our options are. We don’t have a plan as yet.”
If there is no will on the part of the state to assist the authority now, Abrams suggested that there may be a change in attitude after the November elections.
“I think there will be a more concerted effort at that time to work on a solution,” he said.
In a recent interview, an FDOT finance official said that the authority owns the bridge and the department is not in a financial position to assume the debt, which is not a full faith and credit of the state.
In other discussion at Wednesday’s board meeting, the authority acknowledged that it has received numerous e-mails and phone calls from the public. But they are going unanswered because the agency does not have an executive director or anyone else to respond to them.