BRADENTON, Fla. — The Santa Rosa Bay Bridge Authority in north Florida has received a letter from the Securities and Exchange Commission inquiring about “disclosure issues,” the board’s attorney, Roy Andrews, said during a special meeting late Wednesday.
The 18-page letter from the SEC’s Atlanta regional office was sent to board chairman Garnett Breeding on Nov. 17.
The letter requests various reports of the board, including “reports of listed events, instructions concerning the materiality of reported listed events and whether to report the events, and all other documents the SRBBA has given” to its dissemination agent pursuant to the continuing disclosure agreement for nearly $100 million of revenue bonds sold in 1996.
The SEC asks for documents that discuss or explain if any disclosure documents were not provided to the dissemination agent and to submit all financial statements and minutes of board meetings, among other documents.
Andrews told the board that Breeding, a longtime member of the financially ailing authority, had been requested by the commission to give testimony, saying, “We’re in the process of taking care of that.” The SEC has agreed to take testimony in north Florida, Andrews said.
The SRBBA sold bonds to build the 3.5-mile-long tolled Garcon Point Bridge and is expected to default on debt-service payments next year after exhausting reserves. There are ongoing bond-covenant violations, including not providing audited financial statements and violations of debt-service coverage requirements.
Some issues appear not to have been disclosed to the bond market over the years, but it is not clear if the SEC’s inquiry is related to any of those factors. At the SRBBA meeting, board members expressed concerns about the SEC investigation and the fact that there are no funds to hire attorneys to represent them individually.
Several members said that the inquiry could have a chilling effect on people who volunteer to be members of such boards. The authority’s six members are appointed by the governor and the Santa Rosa County Commission.
Breeding did not attend the special meeting Wednesday, which was led by vice chairman Steve Burch. Burch, who was on the board when the bonds were sold, turned in his resignation effective Dec. 1 but it was not clear why he was leaving. Breeding apparently plans to resign as well.
During discussion about the SEC letter, one board member said if the chairman voluntarily testifies before the commission that information can be used against him. “That’s not a very friendly indication,” she said, apparently referring to the tenor of the letter.
Andrews, the board attorney who represents the authority as a volunteer, indicated that he was assisting in compiling some information. Andrews’ firm has represented the SRBBA since the bonds were sold. He does not represent individual board members.
The board agreed to make arrangements for some documents to be obtained from the Bank of New York Mellon, the bond trustee, to fulfill the SEC’s request.
“We’re a group of people just trying to do what’s best,” one member said. “I don’t know what has been done that might have caused this.”
The SRBBA has been in technical default on its bonds for some time and its ratings are at junk levels. Debt-service coverage in fiscal 2009 was 0.52 times while the required level is 1.2 times. Draws on debt-service reserves have occurred since 2002 without required replenishments.
Since no funds were available to hire auditors for many years, the authority asked the Florida Department of Transportation to prepare unaudited compilations of revenues, expenses, changes in fund net assets, and cash flows. At Wednesday’s meeting, the board again asked FDOT to prepare the compilation for this fiscal year.
The lack of audited financials appears to be in violation of SEC Rule 15c2-12 and there are indications that may not have been disclosed in some years.
In August, the authority’s guaranteed investment-contract provider, WestLB AG, sent a letter stating that the SRBBAwas in default on its GIC contract.
In September, ACA Financial Guaranty Corp. filed a material-event notice through BNY Mellon asking bondholders if they were interested in creating a committee to investigate solutions to the looming payment default. Although the bonds were not insured at the time of sale, ACA Financial is a secondary market insurer of some of the bonds.