Red flags seen in failed plan to resolve Florida toll bridge default
Investors in a north Florida toll bridge with bonds in payment default since 2012 won’t get a buyout this year.
That’s a good thing for the state, according to an analyst who believes that a legislative effort to restructure the Santa Rosa Bay Bridge Authority's bonds could have posed a constitutional dilemma.
House Bill 1281 and Senate Bill 1436 both died when the Legislature adjourned March 11.
As originally filed, the nearly identical measures would have allowed the Florida Department of Transportation to take out the SRBBA’s $135.2 million of defaulted bonds at a discount.
But HB 1281 was significantly amended on Feb. 27, and Fitch Ratings believes the amended bill could have violated state and federal contract laws by impermissibly elevating payments that are currently subordinate to the payment of debt service.
“It is Fitch's view that law strictly limits the ability of a state to amend the legal structure and related contracts legislatively and extinguish bondholder claims without consent of each bondholder,” said Tanya Langman, director of Fitch’s Global Infrastructure and Project Finance Group.
The House bill would have allowed the FDOT to acquire the Garcon Point Bridge, for which the SRBBA issued $75.5 million of fixed, current-interest toll revenue bonds and $19.5 million of capital appreciation bonds in 1996.
The debt has been in payment default since January 2012 because toll income doesn’t cover debt service on the revenue bonds. The toll bridge never met traffic projections.
Fitch withdrew its D rating on the SRBBA’s bonds in 2013 saying it was “no longer considered analytically meaningful.” That same year the bond trustee accelerated the debt, declaring the principal of the outstanding bonds to be immediately payable.
Since the bridge opened in 1999, FDOT has operated and maintained the bridge under a lease purchase agreement.
Under that agreement, $25.3 million in operations, maintenance and capital costs currently owed to FDOT, along with a $7.9 million loan obtained by the SRBBA from FDOT’s Toll Facilities' Revolving Trust Fund, are subordinate to bond payments.
The amended House bill authorized the FDOT to refinance the bonds, pay itself for outstanding operations, maintenance, capital and loan costs first, and then pay off the defaulted bonds at 50 cents on the dollar.
The proposed reimbursements would have been inconsistent with the terms of the original transaction, according to Langman.
The lease purchase agreement between FDOT and the SRBBA, along with the bond resolution structurally subordinates operations and maintenance and loan payments to the senior bondholders, before and after any payment default, she said.
“It is Fitch’s view that a non-consensual revision of bondholders’ rights could be challenged as an impermissible impairment of contract under the state and federal constitution,” Langman said.
Rep. Jayer Williamson, R-Pace, sponsored HB 1281. As originally filed, his bill could have offered bondholders haircuts between 27% and 45.5%, a range based on refinancing strategies recommended by the Division of Bond Finance.
Those refinancing strategies contemplated paying bondholders before FDOT could recoup its costs.
Williamson told the House Government Accountability Committee on Feb. 27 that he proposed reducing bondholder recoveries further after talking with committee members and finding from those discussions that “it was clear for the bill to continue to move” through the legislative process the change was necessary.
“We’re simply saying we’ll offer 50 cents on the dollar,” he told the committee. “It gives us bargaining power as we’re naming the price that the state will pay.”
Williamson said he arrived at the reduced payment by subtracting the operations, maintenance, capital and loan costs incurred by the DOT since the bridge opened.
Rep. Bob Rommel, R-Naples, thanked Williamson for reducing the amount bondholders would be paid.
“I was concerned that the state of Florida was bailing out private bondholders…which I thought was a bad deal for the residents of Florida,” Rommel said. “Under your new proposal in essence you could be saving taxpayers over $100 million.”
Although bond documents state that gross toll revenues are pledged to the SRBBA’s debt, and that FDOT costs are subordinate to the payment of debt service as long as the bonds are outstanding, no one on the committee – including Williamson - addressed those issues.
An analysis of the amended HB 1281 mentions that the FDOT costs are subordinate under the lease purchase agreement, but doesn't flag any legal or constitutional problems, including the fact that the SRBBA’s enabling legislation contains a non-impairment pledge.
Fitch’s Langman said although the legislation sought to provide authority for FDOT to take out the bonds, it would have been up to bondholders to agree to the terms put forward.
“FDOT's commitment over many decades has helped toll agencies achieve and maintain investment-grade ratings, as the gross revenue pledge provides for an additional level or protection particularly during early operating periods, economic downturns and heavy investment cycles,” she said.
The Legislature’s failure to advance the House bill “indicates continued institutional support” from the state, Langman said, for other Florida toll projects with lease purchase agreements, including the Mid-Bay Bridge Authority and Florida Turnpike Enterprise.
“To date, FDOT has always stood by its commitment to fund O&M and capital costs, and such support along with the toll facilities' revolving trust fund loans have served as a significant credit enhancement for debt issued by a number of tolling authorities in the state,” she said.
That kind of support would be most relevant to Fitch-rated projects with similar lease purchase agreements such as the Mid-Bay Bridge Authority in north Florida. Its senior bonds are rated BBB-plus and junior lien bonds are rated BBB by Fitch.
The AA-rated Florida Turnpike Enterprise, which is a large and mature division of FDOT with considerable positive cash flow available for reinvestment, is less driven by the state’s support but “in a crisis that support will remain a material credit factor boosting credit quality,” she said.
If a bill to take out the SRBBA’s bonds is reintroduced, Fitch said it expects the purchase price would need to be agreed upon through negotiation with the bondholders.
“A non-consensual outcome would raise substantial questions about bondholder rights more generally and would need to be considered even in the context of performing transactions,” Langman said.
Garcon Point Bridge bill sponsors have said that they expect to file legislation for lawmakers to consider next year.