The bank representing the bondholders on the Purple Line construction has agreed to postpone any “enforcement action” until Nov. 30, giving the project’s concessionaire more time to try to reach a settlement with the state, according to project documents.
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Industry experts say such a “forbearance agreement” grants a borrower more time to reach a deal — in this case, for the concessionaire to try to salvage the project’s $5.6 billion public-private partnership — to prevent potentially having to default on its debt.
Saving the partnership also would benefit the state, experts say, because the Maryland Department of Transportation wouldn’t have to secure a new private partner to complete the light-rail construction, which would add time and costs.
If the partnership dissolves, the state would have to find another way to finance the remaining $1 billion of construction. MDOT also might have to provide money to the concessionaire to pay off its $313 million in bonds.
With early termination costs, that could amount to $367 million, depending on the outcome of the state’s and concessionaire’s lawsuits against each other, according to recent court testimony by MDOT’s chief financial officer.
The money could be difficult to find at a time when the state has proposed slashing nearly $3 billion from its six-year capital transportation budget due to the coronavirus pandemic.
The chances of reaching a settlement remain uncertain, as both sides have been tight-lipped about the talks. The concessionaire, Purple Line Transit Partners (PLTP), recently terminated its 36-year contract with MDOT following three years of arguing over a reported $800 million in unpaid cost overruns stemming from more than 2½ years of delays. Each side is suing the other for breach of contract.
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In a notice to bondholders filed last week, PLTP said it and U.S. Bank, the bondholders’ trustee, had agreed to take no action for another month.
PLTP said it had extended its Sept. 30 agreement, in which the bank said it would not take any enforcement action against PLTP, and PLTP said it would not seek any of the remaining bond proceeds.
U.S. Bank probably wants PLTP to take more time to try to preserve the partnership, experts say, because it would protect the investors who bought the project’s $313 million worth of private activity bonds.
The bondholders have a better chance of being paid in full, ideally with interest and over many years, if MDOT and PLTP resolve their differences and avoid a lengthy court battle, experts said. Such bondholders are typically mutual funds, pension funds and other institutional investors.
Both PLTP and U.S. Bank declined to comment on the forbearance agreement. PLTP is composed of Meridiam, Star America and Fluor Enterprises.
MDOT spokeswoman Erin Henson directed questions about the agreement to PLTP, saying MDOT and the Maryland Transit Administration “are not parties” to it. Even so, she said, “Negotiations with PLTP are still underway.”
The state recently assumed some of PLTP’s subcontracts to keep some work moving. However, most major construction stopped after PLTP’s contractor quit in September, leaving behind 16 miles of torn-up roads and partly built rail bridges and track bed between Montgomery and Prince George’s counties.
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PLTP said it terminated its partnership with the state as of Sept. 10, but the state is contesting that termination via its lawsuit. Meanwhile, the bonds and other debt that PLTP took on to build the Purple Line remain.
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Roddy Devlin, an attorney who specializes in public-private partnerships for the law firm Nixon Peabody, said he couldn’t comment on the Purple Line forbearance agreement because he’s not involved with it.
However, he said, bondholders generally want projects to be completed so they can begin generating the revenue needed to make the bond payments.
“There’s a benefit to everyone taking a deep breath and stepping back and giving the parties a chance to get things back on track,” Devlin said of forbearance agreements.
The unraveling of the Purple Line’s public-private partnership has attracted national attention because it was one of the first U.S. transit projects to include private financing.
The bonds were issued in 2016 by the Maryland Economic Development Corp., a state entity, on behalf of PLTP. PLTP is responsible for repaying the debt, MDOT said.
However, under the partnership agreement, MDOT would provide PLTP the money to do so, either via periodic payments over 30 years after the Purple Line begins to carry passengers or as part of a termination payment if the partnership dissolves.
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