Florida's privately owned and operated intercity express train Brightline has seen its bonds continue to tumble in recent weeks after the company announced it would
Investors said they're keeping their eyes on an upcoming August 13 mandatory rollover of a nearly $1 billion chunk of bonds for planned commuter rail projects in partnership with Miami-Dade and Broward Counties.
Separately, Brightline's plan to issue $400 million of new private activity bonds advanced last week after the Florida Development Finance Corp. held a TEFRA public hearing on the financing.
The FDFC, which acts as conduit for the bonds, expects to hold an August meeting on the financing, which will include details on the PABs, said Ben Watkins, Florida's debt manager who sits on the FDFC board.
One of the most closely followed credits in the high-yield municipal bond market, Brightline Florida owns and operates a 235-mile intercity high-speed passenger rail service connecting Miami to Orlando, with plans for an extension to Tampa. The train this year has seen lower-than-projected ridership and ticket revenue. The underperformance has sparked downgrades to the company's $5.5 billion debt.
Fitch Ratings and S&P Global Ratings in May
Kroll Bond Ratings Agency in May downgraded to B-plus/negative from BB its ratings on the Brightline East notes, and affirmed the BBB ratings for the $2.2 billion Opco bonds while revising the outlook to negative from stable.
Roughly half of the $2.2 billion opco bonds carry a wrap from Assured Guaranty.
A $5 million chunk of uninsured opco debt with a 5% coupon due in 2041 bonds traded Wednesday for 77.5. That's down from 90.9 on June 5 and 99.5 in mid-March.
Some of the 12% bonds due in 2032 traded for 73 on July 15, down from 103.75 in May. The company deferred interest on those bonds, along with others that carry a 10% coupon.
Barclays, in a client note Friday, said it "sees value" in the opco bonds "at current levels, as there is solid asset coverage in case of a credit event," the firm said. "In our view, the safest way to express this is to buy Brightline's bonds wrapped by Assured ($1.1 billion), which are trading in the mid-90s and provide good yield and insurance protection."
Roughly $1.4 million of Assured-wrapped opco bonds due in 2053 with a 5.25% coupon traded hands on July 23 for 95. That's down from 97.2 on May 29, and 101.8 on March 24.
The "most pressing issue" is the August 13 rollover for the commuter bonds, which carry an 8.25% coupon, 2057 maturity and an embedded $104.25 mandatory put, Barclays said.
Roughly $4 million of the commuter bonds traded on July 16 for 95. That's down from 102 in June and May, and indicates "there is clear risk here," Barclays said. "If the August maturity is rolled over, as we expect, it would provide some relief for the whole complex," the firm said.
The borrower, which is Brightline Florida Holdings LLC, most recently rolled over the commuter bonds in February. The refinancing comes amid ongoing negotiations with Miami-Dade and Broward counties to develop commuter services along Brightline's corridor in exchange for payments.
The projects would require additional infrastructure, which the counties would cover, the company said in
Once the agreements are finalized, Brightline plans to monetize future payments by the counties "in one or more securitization transactions." A separate agreement with Palm Beach County is possible, the company said.
It's a more complicated credit than is typical in the municipal bond market, said Watkins.
"There's not the same amount of clarity that we would normally see in the muni space," Watkins said. He said he expects the FDFC board will learn more about the planned $400 million of PABs at the August board meeting.
Watkins said from his perspective, the most important aspect is that Florida has no financial obligation on the project. He noted that the recent deferred payment was not a default and that the company has historically adapted to changes as it's built the country's first intercity express line.
"Yes, missing ridership projections should be on an investor's radar screen, but the fact that they kicked the [interest] payment at an increased [2%] rate, that seems to me to more of a timing issue than an indicator of the death knell for Brightline," he said.
"It's important to have context — this project been ongoing for years," he added. "Their plans evolve over time and they adapt to the cards they're dealt and where they are in their fundraising process."
Brightline has outlined a tentative schedule that calls for closing the financing by Sept. 15. The company has said it would issue the PABs in multiple tranches, with the first issuance totaling around $150 million.
The company did not respond to requests for comment.
