WASHINGTON — More than $200 million of toll revenue bonds issued by the Connector 2000 Association Inc. for a 16-mile toll road in Greenville County, S.C., defaulted on Jan. 1, in what sources said is the first public-private partnership default in the state.
Some Connector bonds were trading as low as 10 cents on the dollar last month, according to trade data filed with the Municipal Securities Rulemaking Board.
The default was expected. U.S. Bank NA, the trustee bank for the bonds, notified bondholders in October that it would not be able to pay debt service on Jan. 1 because of insufficient funds in the debt-service reserve funds.
The bonds were issued in February 1998 for the construction of the Southern Connector Project. The toll road opened in March 2001 — eight months early.
But the toll revenues never came close to the initial estimates made by Wilbur Smith Associates, a Columbia, S.C.-based transportation and infrastructure consulting firm. In 2008, the toll road generated $5.2 million in total revenue, according to the Southern Connector’s Web site. That revenue was only 34% of what the initial estimates showed the toll road would generate for 2008.
High gasoline prices in 2007 and 2008 suppressed revenue, according to a May report by Stantec Consulting Services Inc. Still, the road only exceeded the revenue estimates in 2001, the year it opened.
Standard & Poor’s lowered the bonds to D from C on Monday. The bonds were rated BBB-minus when they were issued.
Since July, bondholders have been paid mostly from a debt-service reserve fund. The fund has not been replenished and U.S. Bank is reserving the remaining amount for a restructuring plan, Standard & Poor’s said. About $2.9 million remains in the debt-service fund for senior bonds.
Neither lawyers at Haynsworth Sinkler Boyd PA, the bond counsel, nor officials at U.S. Bank could be reached for comment. Peter Femia. general manager of the Connector, and officials from the South Carolina Department of Transportation declined to comment.
Bondholders are working on a debt restructuring plan, which could hinge on legislation pending in the state legislature, sources said. Bills in the House and Senate “could facilitate a potential consensual restructuring plan,” U.S. Bank said in a disclosure document filed with the MSRB’s Electronic Municipal Market Access system in December. Lawmakers could not be reached to discuss the specifics of the bills.
To raise more revenue, toll rates for the road were increased on Nov. 1 to $1.25 for cars that pay in cash. Under the initial revenue estimate, toll rates were not expected to increase to that level until 2011. The higher rates generated $502,485 for the road that month, the highest monthly total on record.
Further toll increases could generate more revenue, but must be delicately balanced with the potential loss of drivers, according to the Stantec report.
The report said the accelerated toll rate schedule could generate 3.9% revenue growth in 2010. It highlighted the potential growth stemming from residential and commercial real estate along the Connector route, noting that Greenville County’s population growth has outpaced the state’s average. However, employment growth in the county is expected to lag its neighbors, the report said.