Florida passenger train Brightline may file for bankruptcy as soon as Thursday morning.
The filing, first reported Tuesday by Bloomberg, would mark the largest municipal market bankruptcy in years.
The train would continue operations under the plan, according to reports and sources, and the municipal debt would not see a haircut in par value although debt payments on the subordinate debt would continue to be delayed.
The restructuring would focus on $1.19 billion of corporate notes held by a group of hedge funds, with the aim of shedding debt to give the company breathing room while it tries to ramp up ridership.
The corporate debt was issued by Brightline East LLC.
Brightline on Tuesday filed a
The Fortress Investment Group-backed company operates a 235-mile train in Florida that's the nation's only privately owned intercity rail line.
A bankruptcy would come as little surprise to market participants who have long followed the tribulations of the struggling train line's efforts to secure financing with repeated debt payment delays amid negotiations with muni and corporate bondholders.
"While the prospect of a near-term filing is likely not a major surprise to market participants, we understand the signal that the operating unit is expected to remain outside the possible bankruptcy to be constructive news for municipal investors," said JPMorgan said in a Wednesday note.
With $4.4 billion of muni debt, Brightline is one of the largest credits in the high-yield market.
Bloomberg reported that Brightline is negotiating with bondholders First Eagle Investment Management and Nuveen — two of the largest high-yield mutual funds in the market — as well as Assured Guaranty.
The operating company, Brightline Trains Florida LLC, holds $2.2 billion of senior debt, including $1.13 billion of which is wrapped by Assured, giving the insurer a controlling position.
The $350 million Assured loan secured in August features a super senior lien to all other debt. Assured did not respond to a request for comment.
Brightline Florida has four debt levels, topped by the senior municipal or Opco bonds controlled by Assured. The bonds sit closest to the railroad with collateral that includes project revenues, some real estate, rolling stock and equipment.
A round-lot of the uninsured senior bonds traded on Sept. 3 for 64 cents on the dollar.
Below the senior Opco bonds are $1.2 billion of unrated tax-exempt 2024 bonds, issued by AAF Operations Holdings LLC, which carry 10% and 12% coupons. Collateral on that debt includes a planned expansion to Tampa and an equity piece in Brightline West, the company's West Coast high-speed train project. The bonds trade around 33 cents on the dollar.
Somewhat separate from the rest of the debt stack is $985 million of so-called commuter bonds issued by Brightline Florida Holdings LLC. The bonds have a 10% coupon that's carried a 2% step-up rate since Brightline deferred a payment originally due on Feb. 15. The commuter sit furthest from the assets and are secured by commuter rail access rights and equity interests in the Miami-Dade, Broward, and Palm Beach commuter entities. They also have a second lien pledge on some of Brightline West. The commuter bonds last traded in January for 63 cents.
The $1.19 billion of taxable corporate notes with an 11% coupon are backed by the value of the equity.
