With Orlando expansion open, Brightline eyes refinancing, first rating

For train enthusiasts and municipal investors alike, the September opening of the Florida Brightline train expansion to Orlando marked a key goal for the long-term success of the nation's only privately financed, intercity express passenger train and one of the largest speculative project finance deals in the municipal market.

The extension was also celebrated by the Biden administration, with Transportation Secretary Pete Buttigieg riding the train on Oct. 17 and meeting with local Florida officials from Palm Beach, Broward and Miami-Dade counties, who are hammering out their own commuter deals with Brightline.

Brightline

"Good trains and transit benefit you even if you don't use them, because it means there's fewer cars on the road to compete with and to add to congestion," Buttigieg said, according to local reports. "So we really view this as a win-win, and we're going to keep making those investments where we think they're called for and needed, and where the private sector can do it without taxpayer involvement."

The only privately-financed express train in the U.S., the $6 billion Brightline is also one of the largest and highest-profile unrated project finance deals in the muni market. The project carries $3.5 billion of debt, much of it unrated bonds limited to sophisticated buyers and held by Nuveen, the muni market's largest high-yield buyer.

Brightline Trains Florida LLC, which is owned by Fortress Investment Group, began operations in 2018 between Miami and West Palm Beach. The extension promises a speedy 235-mile ride between downtown Miami and tourist-laden Orlando International Airport. With the long-distance service now in operation, Brightline is banking on a ridership spike to support its goal of refinancing its entire debt load and snagging its first public rating.

Analysts and investors will be watching closely to see if the company is able to hit ridership targets, which include 8.78 million annual riders and more than $1 billion in revenue by 2030, according to bond documents.

Brightline has "bold plans to transform high-speed rail in the U.S.," according to its website. Next on tap is launching an electric line between Las Vegas and Los Angeles. Unlike the Florida project, which owned the existing railroad that it's built on, the proposed Brightline West line would rely heavily on federal subsidies to build out its $12 billion project, including a $3.75 billion federal grant. Brightline West would be "the nation's first true high-speed rail network with fully electric trains operating at top speeds of 200 mph," the company said, with a groundbreaking as early as this year.

Texas and the Pacific Coast are other areas for potential lines, Brightline CEO Mike Reininger said during a Reason Foundation documentary on high-speed trains in the U.S.

"We're looking all around the country at 250- to 300-mile separated cities," Reininger said. "Portland-Seattle is one that looks attractive to us. Texas has a number of them."

Brightline carries $2.7 billion of senior bonds and $985 million of debt backed by commuter rail access rights. The company most recently came to market on Sept. 29 when it remarketed $770 million of the revenue bonds to roll over debt originally issued in August 2022 ahead of a tender date of Oct. 3. The new tender date of April 2024 will give the company time to finalize long-term commuter access rights with Miami-Dade and Broward counties in exchange for annual payments, which the company expects to securitize.

Brightline's restructured capital stack would be a mix of senior and subordinated private activity bonds, taxable senior and subordinated notes and equity, the company said in September bond documents. Brightline did not respond to requests for comment.

DWS Group

DWS Group, which holds about $18 million of Brightline bonds, has enjoyed strong income growth from its position, said Chad Farrington, co-head of municipal bond strategy at DWS.

"Stack it up against other project finance deals out there and it's the only one that's still working so far," Farrington said, naming other struggling or defaulted project finance deals like American Dream and Legacy Cares.

"The yields on this are north of 8% on some of the bonds," Farrington said. "There's nothing out there that's nondefault that's close to this."

An $8.2 million block of Florida Development Finance Corporation Surface Transportation facility revenue bonds Series 2019B due in 2049 with a 7.375% coupon traded Tuesday for 99 with a 7.6% yield.

The support from Fortress through difficult periods like the pandemic has proved key to the credit, Farrington said.

"They've stood behind it and extended the debt and they've infused additional equity so that has been pretty unique, we haven't found that with a lot of other project finance deals," he said.

September numbers show a 56% increase in ridership over the same month last year, according to the company's most recent revenue and ridership report.

Ridership numbers will prove key as the company seeks its first public rating.

Fitch Ratings analyst Seth Lehman said the credit would be evaluated under Fitch's public finance/infrastructure criteria.

"We'd look at the ability on a standalone basis to be able to support its costs, whether that's operating or financing costs over the term of the debt," Lehman said.

"Brightline is relatively new and doesn't have the same long history of maybe some other rail infrastructure enterprises out there, but still it's no longer in a construction phase, so construction-related risk would no longer be a key area of risk analysis," he added.

Nuveen holds $2.5 billion, or nearly 75%, of Brightline's debt, and the credit accounts for five of the top 10 positions in Nuveen's High Yield Municipal Bond Fund, including its top municipal holding that makes up 2.8% of the fund. Nuveen declined to comment for the story.

Having hit the Orlando benchmark, the company's growth plans continue. Last week, it launched a request for proposals for a station on Florida's Treasure Coast and is next eying expansion to Tampa, with stops at the Orange County Convention Center and Disney Springs and its theme parks.

"Now that Orlando is up and running for a month, I'm sure we'll see a spike in ridership," Farrington said. "So far, so good."