Brightline Florida bonds remained largely unmoved Thursday following Fitch Ratings downgrade of the debt into junk territory and S&P Global Ratings' negative outlook revision.
Investors too appeared largely indifferent to the ratings actions, with some saying they already viewed the credit as sub-investment grade. Others said it's too soon to gauge ridership and that Fortress, which backs the Florida train and
The fresh junk status is not expected to force any selling of the bonds by mutual funds as the paper for now retains its investment-grade rating from S&P.
Fitch on Wednesday
Last Friday,
Of the $2.2 billion in tax-exempt bonds, $1.13 billion is insured by Assured Guaranty and rated AA.
Assured declined to comment.
The negative ratings actions don't "seem to have [fazed] long time investors of the name [who] are used to the project under performing projections," said Dora Lee, director of muni research at Belle Haven Investments. Lee added that it was surprising to see a negative outlook revision "so soon" at a time when the train's development remains fluid.
"It just points to the fact Brightline has been and will continue to be a volatile credit," she said.
The Fitch downgrade comes nearly a year to the date after the credit crawled out of junk territory, where it had long been one of the high-yield market's most prominent names. The complex and long-planned
Ratings analysts said the negative actions reflect weaker-than-expected ridership coupled with unexpected expenses and decreased liquidity.
Jeff Devine, director of municipal bond research at GW&K Investment Management, said the firm already viewed the credit as sub-investment grade at the time of last year's financing.
"So in terms of valuation, it's where we initially thought it would be from a credit rating perspective," Devine said, who declined to say whether GW&K owns the paper.
"Given the current information, it's hard to be bullish on the credit," Devine added.
The company's long-term ridership projections and ramp-up forecasts are "not what the current trends in ridership are showing," he said.
The bonds have not reflected the negative ratings actions, although they have cheapened in recent weeks. Roughly $2.7 million of bonds due in 2053 with a 5.25% coupon traded Wednesday at a high of 101 and a low of 98.7. That's about on par from trades in late April, prior to the downgrade, but down from prices over the past year, including trades of 107 last May.
But the bonds may soon start to show some stress, said James Pruskowski, CIO and co-founder of 16Rock.
"The downgrade should amplify pressure on spreads, especially given ownership concentrated in a handful of funds," Pruskowski said in an email to The Bond Buyer. "This isn't a name to front-run. The underlying issues — weak ridership, soft revenue, rising costs, and deteriorating liquidity — reflect broader macro fragility across the high-yield sector."
An investor who holds the credit and asked to remain anonymous remains optimistic. The holder noted that S&P said long-distance ridership last year was better than their internal forecast even as the average long-distance fare was below expectations. "Gradually increasing long-distance fares remains a key initiative of Brightline this year and positive results have been shown recently," the investor said.
They also noted that Fortress "remains very committed to the long-term here and never assumed that ridership ramp-up would be a linear straight line with no bumps along the way."
Brightline Florida makes up two of the top 10 positions in Nuveen's High Yield Municipal Bond Fund, the market's largest high-yield fund. Nuveen declined to comment for the story.
