Brightline sees strong demand; unrated bonds sport 12% yield

Brightline, Florida's privately owned passenger train, hit the tax-exempt market Thursday, after weeks of marketing, with more than $3.1 billion of low-investment grade and unrated bonds, some of which carried yields as high as 12%.

The company enjoyed strong demand for all the paper, which was more than two times oversubscribed and saw more than 50 accounts vying for the investment-grade piece, according to investors.

Brightline, which currently operates between Miami and Orlando, made its investment-grade debut with the $2.2 billion deal. The unrated tax-exempt bonds, totaling $925 million and offering a juicy 12% yield, were issued by a subordinate borrower that's responsible for a planned extension to Tampa.

Brightline

Backed by the Fortress Investment Group, Brightline has about $3.75 billion of debt outstanding in the high-yield municipal market, all of which will be pulled out and replaced by the new debt.

Spreads tightened about 10 basis points amid demand for the investment-grade piece throughout Thursday and the size increased slightly, to $2.219 billion from $2.2 billion. The bonds featured BBB-minus ratings from S&P Global Ratings and Fitch Ratings and BBB ratings from Kroll Bond Rating Agency.

A bond due in 2053 with a 5.5% coupon yielded 5.15% with a 124bps spread — down from 5.25% and a 134bps spread in preliminary pricing.

Roughly half of the bonds carry insurance from Assured Guaranty. A chunk of insured bonds due in 2053 with a 5.25% coupon yielded 4.65% for a 74bps spread, down from 4.75% in earlier pricing.

For investors willing to take the risk, the unrated bonds offered a 12% coupon and 12.6% yield. The debt was sold only to qualified institutional buyers under Rule 144A.

"I don't know if I've ever seen, in my 25 years, a bond issued with a 12% yield," said Chad Farrington, co-head of municipal bond strategy at DWS, which owns some of the Brightline debt that's being taken out with this week's deal. Farrington, who's bullish on Brightline's future, declined to say whether the firm participated in the financing.

The risk associated stems from the speculative nature of the extension to Tampa, Farrington said. "If you look at the structure of the entire deal, [the unrated tax-exempt deal] was definitely the riskiest piece of it," he said.

The unrated bonds feature a mandatory tender date of July 2028 and are callable almost immediately, starting in early May, according to the pricing wire.

Brightline is refinancing most of its capital stack, which totals more than $4 billion, with another roughly $550 million funding a series of reserve accounts.

In addition to the pair of tax-exempt deals, the company sold $1.32 billion of senior taxable high-yield rated paper, reportedly with 11% yields, and $80 million of subordinate notes.

Morgan Stanley & Co. LLC. ran the books.

Brightline entered a market with favorable technicals, as high-yield mutual funds have seen significant inflows this year. The lack of high-yield supply coupled with Brightline pulling more than $2 billion out of the high-yield market, is a recipe for demand as portfolio managers look to redeploy the money, Farrington said. The fact that Brightline is a high-profile name in the market also benefits the deal, he added.

The deal comes the same week that Brightline broke ground on its planned high-speed electric line between Las Vegas and Southern California.

A spokesperson for Brightline declined to comment.