Greenville Southern Connector SC last of not-for-profit pikes is broke

As they warned last fall the Greenville Southern Connector (GSC) tollroad defaulted on debt service due January 1. They are now in discussion with creditors as to who takes the losses, and how they reorganize the toll operation in Greenville SC - located on I-85 midway between Atlanta GA and Charlotte NC.

A statement released by the operator, Connector 2000 Association says:

"Traffic on the Southern Connector was inadequate to permit the Association to collect sufficient toll revenues to pay debt service on the Senior Bonds and Subordinate Bonds which came due January 1, 2010. The Association has been advised that the Bond Trustees have made no payment of any such debt service. An Event of Default currently exists and is continuing on the Bonds and under the Master Indenture. The Association is actively negotiating the restructuring of its bonded indebtedness with the Bond Trustees, the South Carolina Department of Transportation, and certain owners of large blocks of the Senior Bonds."

The one-third belt route pike project that opened early 2001 was based on projections of daily traffic of 28k by the end of the first year rising to 37k in 2015. That 1998 forecast has turned to be hugely exaggerated. The traffic and revenue (T&R) forecast was produced by international T&R giant Wilbur Smith Associates (WSA), headquartered not far away in Columbia SC.

GS Connector traffic should have been around 33k/day by now.

In the year just ended traffic was 15k/day or about 45% of forecast.

(Traffic is measured here by toll transactions so trip numbers are lower than 'traffic.')

Truck traffic is a lower proportion (only 4%) than expected, and so average toll revenue/transaction is lower than in the forecasts.

WSA three times too high on revenues

Revenue was therefore even further off-forecast than traffic.

WSA projected GS Connector (GSC) annual toll revenues after ramp-up in 2003 at $10m, three times the $3.34m achieved.

By 2015 tolls were forecast at $21m. To be on the WSA track they should be nearly $16m in 2009. They were one third of that at $5.25m.

A remarkable consistency in gross over-estimation.

Why forecasts failed

The GS Connector simply does not serve major commuter flows within the approx 600k population metro area.

These flows are on a southeast-northwest axis Simpsonville, Mauldin, Greenville and along US276 and I-385. This is mostly to the north and east of the Connector.

The Connector including the toll-free portion of I-185 swings too far south, southwest and west to compete for major internal metro area traffic.

It doesn't offer time-savings to most of the local traffic.

The road was located mainly to serve new development on the southern and southwest fringe of the area, not to relieve congestion.  The new development has occurred, but more slowly than the tollroad promoters predicted.

The Connector route is too circuitous for through traffic and it is badly connected to I-85 at its western end for Atlanta to Columbia traffic.

The  interstate designation (I-185) is ridiculous.

It is a fringe metro area development access road.

Retired Federal Highways chief the mover & shaker

Chief mover and shaker in the project was Bob Farris, a former federal highway administrator from the Washington DC area.

South Carolina state highways commission chairman at the time Buck Limehouse was a strong local supporter.

Farris formed a private company called Interwest which developed the project from permitting through design and construction.

They set up the not-for-profit Connector 2000 Association that was granted a state license to operate the tollroad for 50 years.

The Association sold some $240m of bonds which financed the $190m of construction costs and provided a cushion against a few years of losses.

Lehman Bros of Wall Street, since gone broke, was major financier.

BACKGROUND: Greenville has a city population of 56k but with Spartansburg to the east and other communities nearby forms a metro area population of 602k. In the far northwest corner of the state of South Carolina it is located about midway on I-85 between Atlanta GA and Charlotte NC.

The tollroad 26km, 16 miles in length and 2x2 travel lanes has seven interchanges, two mainline barrier plazas and two pairs of ramp tolls.

Last of a small bunch of ill-concevived no-skin-in-the-game follies

GSC is the last of a small bunch of so-called 6320 (after a clause in the US tax code) not-for-profit toll projects launched in the late 1990s, all of which have now collapsed - others being the Northwest Parkway in Denver Colorado and the Pocahontas Parkway in Richmond Virginia.

In all cases developers who made their money upfront had overoptimistic traffic and revenue projections and inflicted excessive debt on the project. Being not-for-profit they had no shareholders and hence no equity to represent a longterm interest in the project and provide a cushion against hard times.

Pocahontas Parkway and Northwest Parkway were both successfully converted to for-profit private toll concessions before they defaulted as not-for-profits. In 2007-2008 the GS Connector was studied for privatization prior to default, but the financial prospects were seen as too poor to enable it.

By the latest accounts total liabilities of the Association are $325m, about half of which are accumulated losses.

However the Association's accountants Bradshaw Gordon & Clinkscales say the accounts do not meet generally accepted accounting standards and are unaudited. They state they can't warrant them as accurately representing the true financial situation of the troubled pike.

see Jan 11 "Briefing" by the Association with accountants' disclaimer:

http://www.tollroadsnews.com/sites/default/files/Brfg20100111.pdf

on groundbreaking Apr 1998:

http://www.tollroadsnews.com/node/1992

on opening Jan 2001 see

http://www.tollroadsnews.com/node/2865

on moves for privatizing & T&R study May 2008:

http://www.tollroadsnews.com/node/3533

on T&R study and likely bankruptcy Nov 2009:

http://www.tollroadsnews.com/node/4390

on official filings:

http://www.southernconnector.com/Zfilings.htm

TOLLROADSnews 2010-01-21