Brightline adds high-yield muni piece to upcoming refinancing

Florida's Brightline passenger train has added a chunk of unrated tax-exempt paper to an extensive debt restructuring that may price in the coming days, according to investors.

Price talk Friday for the paper hovered between 11% and 15%, said an investor who is watching the deal. The bonds are subject to the Alternative Minimum Tax. The deal is restricted to qualified institutional buyers under Rule 144A with minimum denominations of $250,000, according to a term sheet seen by The Bond Buyer.

Brightline Trains Florida LLC, the operating company of the high-speed line between Miami and Orlando, is set to bring $2 billion of tax-exempt private activity bonds featuring its first investment-grade ratings to market as soon as next week.

Brightline

It's part of a debt restructuring that investors have called "challenging" as its success relies on the sale of additional, subordinate tranches. Those include roughly $1.25 billion of subordinate taxable paper carrying high-yield ratings and issued by a holding company underneath the operating company that is issuing the muni bonds; roughly $1 billion of unrated subordinate taxable debt; and $500 million of bank-placed "preferred securities."

The new tax-exempt tranche totals roughly $800 million, according to investors.

The deals will refinance roughly $3.7 billion of tax-exempt unrated high-yield bonds and fund more than $500 million in reserve accounts during a ramp-up period. The outstanding debt, which plays a prominent role in the high-yield municipal bond market, are majority-owned by Nuveen.

"There are a lot of moving parts because it depends on how much demand they get," said an investor tracking the deal.

Brightline, which is backed by Fortress Investment Group, has a plan to extend to Tampa, and Brightline Tampa LLC owns the right to develop that segment, separate from Brightline Trains Florida LLC, which owns and operates the Miami to Orlando link.

The Tampa LLC will guarantee the payment and performance of the unrated tax-exempt piece, according to the term sheet.

The unrated tax-exempt bonds will be issued on behalf of borrower AAF Operating Holdings, LLC, or the HoldCo. The paper will be structurally senior to the HoldCo's existing or future debt, including $985 million of 2023 "commuter" revenue bonds. It's subordinate to the investment-grade tax-exempt debt, the sheet said.

The bonds are expected to be repaid in full ahead of a mandatory tender date, according to the term sheet, which did not identify tender, maturity or make-whole call dates.

The Florida Development Finance Corporation is acting as conduit on all the tax-exempt bonds. Assured Guaranty is expected to insure around $1 billion of the $2 billion investment-grade piece.

S&P Global Ratings and Fitch Ratings have assigned the senior tax-exempt bonds a preliminary rating of BBB-minus with a stable outlook. Kroll Bond Rating Agency pegs the debt at BBB/stable.