Brightline is moving slowly toward selling $1 billion of tax-exempt private activity bonds to continue funding construction of its Miami-to-Orlando train line and move toward an extension of the line to Tampa.
The Florida Development Finance Corp., conduit issuer for the deal, last week gave tentative approval to the first of two steps that will let a negotiated sale or private placement of the debt move ahead for the privately owned passenger rail system.
Brightline's owner, Fortress Investment Group, will now be able to sell short-term debt as soon as this month, with the proceeds being escrowed until the FDFC gives approval for the paper to be remarketed as long-term debt in the next year.
"Issuing short-term and taking the bonds long later is a good strategy. The entity will issue long a more refined number once the true costs are known. Rates are still relatively low," John Hallacy, founder of John Hallacy Consulting LLC, told The Bond Buyer. "If you take the monorail at Disney World why not use this service?"
In 2018, Brightline began operating trains on 75 miles of rail between Miami and West Palm Beach and has
"The issuance of additional private activity bonds will only fund completion of Brightline’s system to Orlando, except for a portion of funds to be used for design, engineering and permitting for the western segment of our extension to Tampa," according to the company's presentation to the FDFC.
In March 2020, Brightline halted passenger service citing the COVID-19 pandemic and it didn't resume again until November. Still, the company moved ahead with various
According to Brightline’s September revenue and ridership
With support of the Florida Department of Transportation a Broward County commuter rail project has been advancing while work on a Disney station has been ongoing.
Miami-Dade County has approved about $24 million for pre-development funds to be used for design, engineering peer review, environmental and consultant costs for the commuter rail expansion project. Brightline expects local governments to pay to run commuter trains on its line, which serves core downtown areas in area cities, unlike the existing Tri-Rail commuter service.
“We expect key economic terms for the project to include payments to us of up to $50 million upfront and annual payments starting at up to $12 million for 30 years,” according to Brightline documents.
Additionally, the company said that it received $125 million in funding in September under a new bank credit facility. Proceeds will be used for project costs.
According to Brightline, the project has already created many economic benefits to the state. It estimates a $6.4 billion direct impact to Florida's economy over the eight-year construction and implementation timeline. And it projects the work will add $3.5 billion to the state's GDP through the end of this year while providing $2.4 billion in labor income through the more than 10,000 construction jobs that are being created.
The company forecasts that up to 3 million cars could be removed from the roads each year by people using the trains, cutting CO2 emissions by 160,000 metric tons annually.
Still, COVID-19 variants such as Omicron may put a damper on any projections for the next year, with the first case of Omicron being reported in Florida on Wednesday. So far, there have been 3.7 million cases of coronavirus in the state since the pandemic began in 2020, with 61,789 reported deaths as of Monday.
Analysts have said the ultimate success of the project depends on whether it can compete in long-distance travel between Orlando and South Florida.
This new deal isn't the first debt to be issued for Brightline's rail projects.
In December 2020, Brightline remarketed $950 million of unrated short-term tax-exempt private activity bonds, turning them into long-term debt. The FDFC was also the conduit issuer on that deal.
The bonds were originally sold in 2019 and the proceeds were held in escrow. The conversion to long-term debt from short-term paper released the escrowed securities for the company to use to finance the cost of completing the Miami to Orlando part of the rail system.
Morgan Stanley remarketed the $950 million of the Series 2019B surface transportation facility revenue green bonds subject to the alternative minimum tax. The unrated bonds were priced at 95.732 with a 7.375% coupon to yield 7.75% on Jan. 1, 2049. The bonds were originally priced in June 2019 by Morgan Stanley at par to yield 1.90% in 2049 with a mandatory tender date of March 17, 2020.
Secondary trading of the bonds has been both active and consistent over the past few years.
The FDFC 7 3/8% bonds [34061YAH3] last traded on Nov. 19, at a high price of 111.142, a low yield of 4.931%, and a low price of 109.50, a high yield of 5.695%, according to the Municipal Security Rulemaking Board’s EMMA website. The total trade amount was $400,000 in four trades.
On Nov. 16, the 7 3/8s traded at a high price of 110.50, a low yield of 5.238%, and a low price of 109.50, a high yield of 5.702% in two trades totaling $300,000. The bonds began trading initially on Dec. 11, 2020 at a high price of 98, a low yield of 7.547%, and a low price of 94.482, a high yield of 7.865% in 435 trades totaling $1.09 billion.
In April 2019, the FDFC sold $1.75 billion of U.S. Department of Transportation-authorized bonds for the project. The tax-exempts were sold to qualified institutional buyers under Rule 144A of the Securities Act of 1933 as a private placement in three series, each with mandatory puts.
Bond for the project were first sold in 2017 — a $600 million deal the proceeds of which refinanced company debt that was used to build the Miami to West Palm Beach segment.
Meanwhile in the Far West, $1 billion of bonds were sold in 2020 for the Brightline West passenger rail project with the proceeds escrowed pending further development and approvals for the project.
Morgan Stanley in June remarketed the California Infrastructure and Economic Development Bank’s $850 million of Series 2020A AMT revenue bonds and the Nevada Department of Business and Industry’s $150 million of Series 2020A AMT revenue bonds.
The California bonds were remarketed at par to yield 0.20% in 2050 with a mandatory tender date of Feb. 1, 2022; the Nevada bonds were remarketed at par to yield 0.25% in 2050 with a mandatory tender date of Feb. 1, 2022.
Originally in September 2020, the California bonds were priced at par to yield 0.45% in 2050 with a mandatory tender date of July 1, 2021 and the Nevada bonds were priced at par to yield 0.50% in 2050 with a mandatory tender date of July 1, 2021.
The deal was rated Aaa and VMIG-1 by Moody’s Investors Service. Moody’s said its long-term rating was based on the strong legal structure and high credit quality of investments securing the bonds while the short-term rating was based on cash flow projections.
