A judge approved a $258 million debtor-in-possession financing for Florida's bankrupt passenger train operator Brightline Tuesday during a first-day hearing where attorneys also said additional creditors have signed onto a sweeping restructuring agreement.
U.S. Bankruptcy Judge for the District of New Jersey Mark Hall approved the
"I think it's clear that the debtor is executing sound and reasonable judgement and that [the DIP loan] is necessary to effectuate the restructuring and continued operations" of the train system, Hall said.
The approval frees up $190 million for the operating company, Brightline Trains Florida LLC, to use to continue to operate the railroad.
Fortress-backed Brightline, one of the largest and most volatile credits in the municipal high-yield market,
The plan leaves untouched roughly $4.4 billion of outstanding municipal bonds but calls for deferred interest payments. Assured and bondholders will also provide $490 million in exit financing.
The operating company is not part of the bankruptcy. A group of 17 parent and holding companies filed the cases, listing assets and liabilities of between $1 billion and $10 billion in the petition.
During Tuesday's four-hour hearing, attorneys painstakingly walked the judge through Brightline's complex corporate structure and capital stack, which totals $7.1 billion of debt.
"It's pretty simple," said debtor attorney Paul Leake, partner at Skadden, Arps, Slate, Meagher & Flom LLP. The company "has too much debt and doesn't have sufficient revenue and liquidity."
The goal of the case is "first to inject substantial new capital into the nondebtor Opco and second to restructure its substantial debt," Leake said.
The company has been in negotiations with its creditors for more than a year to hammer out a Restructuring Support Agreement, he said.
"The good news is that after those negotiations we've reached an RSA," he said. "Even better news" is that two additional creditors signed onto the RSA just minutes ahead of the first-day hearing, Leake said.
The latest additions are an ad hoc group of "East Noteholders" who hold $746.5 million of taxable notes and $52.1 million of the senior Opco muni bonds, who are represented by Davis Polk & Wardwell LLP; and an ad hoc group of holders group of $327 million of Opco bonds represented by Cleary Gottlieb Steen & Hamilton LLP.
Creditors holding a total of $4.6 billion of Brightline debt now support the restructuring, Leake said.
In addressing objections to the DIP financing, an attorney for Assured noted the DIP loan and the bankruptcy cases "are a bit unusual," as they leave the operating company, where nearly all the value resides, out of the courtroom.
That avoids the need for a federally appointed trustee and uncertainty tied to a railroad bankruptcy, Milbank LLP attorney Dennis Dunne said.
But Assured was also "preparing for a world" in which Opco would file Chapter 11, Dunne added.
Over the last several months, Assured has provided "incremental liquidity" to allow the company to operate while working to find a solution that didn't include an Opco bankruptcy, Dunne said. There was talk of bridge financing from junior lenders, "but that funding did not materialize," he said. "So Assured stepped up to the plate and provided it."
The bond insurer is a "long-term stakeholder here," Dunne said, noting that some of its bonds "don't mature for decades.
"Assured is going nowhere and will be here long after the Chapter 11 cases conclude and will be supporting the company for years," he said.
The DIP objection came from CK Opportunities Fund I, L.P., affiliates of Certares Management and Knighthead Capital Management and a creditor of parent company Brightline Holdings LLC that has been embroiled in litigation for three years. The fund argued against the DIP in part because nearly all of it will go to the Opco and only 3% to fund the bankruptcy proceedings.
CK Opportunities sued Brightline and Morgan Stanley in 2023 for at least $750 million over their investment in parent company Brightline Holdings LLC. The
The fund is a "loose end" that Fortress and the debtors would "love to get rid of," Brown Rudnick LLP attorney Robert Stark told the court. "We've been sitting here for months saying, 'Involve us in these negotiations,' — we were told, 'You have to litigate your way there,'" he said. "We have quite a bit we have to fight for at this moment."
Skadden attorney James Mazza advised the judge to take Stark's arguments "with a big grain of salt" and said the fund has no solid objections to the DIP.
"He is coming into this case with a litigation posture, so it's not a huge surprise that he's not on board with this deal and not one of the parties on the RSA," Mazza said.
A final hearing on the interim orders is set for Oct. 29.
