American Roads files bankruptcy; to emerge under Syncora ownership

By Caroline Salls

Pittsburgh, July 25 - American Roads LLC filed Chapter 11 bankruptcy Thursday in the U.S. Bankruptcy Court for the Southern District of New York.

According to a statement filed with the court by chief executive officer Neal Belitsky, the company entered into a restructuring and plan support agreement with insurer Syncora Guarantee Inc., Alinda Capital Partners LLC, Alinda Capital Partners I Ltd. and Alinda North American Roads, Inc. on July 17.

Under the proposed plan, the American Roads debtors would emerge as reorganized entities under the ownership of Syncora with no outstanding financial debt.

Plan terms

Under the plan:

• The interests in the reorganized debtors will be distributed to Syncora as the holder of the swap policies claim;

• Although waterfall provisions dictate that holders of the bonds will receive no distributions under the plan, the plan will not affect their rights under the bond policies, unless, after the plan effective date, the holders of bonds elect voluntarily to participate in a release offer.

Under the release offer, the debtors will offer to purchase all bonds from holders other than Syncora in exchange for a one-time cash payment equal to 20% of the outstanding principal balance of the claim and a waiver and release of all claims, rights, remedies and causes of action.

Bondholders who elect not to participate in the release offer will be entitled to receive payments of principal and interest to the extent then due and payable on each payment date by Syncora;

• The plan will not provide any recoveries to holders of general unsecured claims, but the debtors said they believe most of these creditors will be paid in full because they are parties to executory contracts and leases that will be assumed under the plan;

• Administrative claims, secured tax claims, secured claims, priority tax claims, other priority claims and professional claims will be paid in full in cash; and

• Holders of interests and subordinated claims will receive no distribution.

The company said the bond release offer will be funded with the proceeds of a capital contribution made by Syncora in an amount not to exceed $50 million and a portion of the cash remaining in reserve accounts, in an amount not to exceed the lesser of $15 million and all cash remaining in the reserve accounts in excess of $25 million on the effective date.

Case background

Belitsky said a restructuring of the company's balance sheet is necessary because it is not able to meet its swaps and bonds financial obligations.

Since the refinancing of the American Roads debtors' debt in 2006, Belitsky said the traffic volumes at the toll facilities have not grown to a level necessary to support their existing capital structure.

Belitsky said the decline in traffic is driven by the economic recession, the volatility of gas prices, reduced travel and discretionary spending, the negative impact of toll increases in Alabama, increased travel documentation requirements adopted by the U.S. Congress in 2009 and adverse regional events, including the Deepwater Horizon British Petroleum oil spill in 2010, the Tuscaloosa tornado in 2011 and a declining population in the Detroit area.

Although Detroit's financial situation has contributed to the difficulties facing the American Roads debtors, Belitsky said the Chapter 11 cases are not the result of the city's recent bankruptcy filing.

The company said it expects its operations to continue without interruption during the bankruptcy process, and tolls are not expected to increase as a result of the filing.

In connection with the bankruptcy filing, American Roads is seeking court approval to use the cash collateral of indenture trustee and collateral agent The Bank of New York Mellon and Syncora to fund its operations while in bankruptcy.

Debt details

According to court documents, American Roads has $100 million to $500 million in assets and $500 million to $1 billion in debt. Specifically, the company listed $830 million in total outstanding financial debt, comprised of swaps and bonds.

The company's largest unsecured creditor is The Bank of New York Mellon, with a $298 million bond debt claim for series G-2 bonds and a $198 million bond debt claim for series G-1 bonds.

The company is represented by Cleary Gottlieb Steen & Hamilton, LLP.

American Roads is a Detroit-based toll facilities operator. Its Chapter 11 case number is 13-12412.

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