Brightline Florida's expected restructuring may chill investor enthusiasm for its West Coast sister project as Brightline West tries to assemble a $21 billion financing package for what aims to be the country's first electric high-speed train.
With the same corporate parent, some cross pollination between bondholders, as well as major cash needs competing for a limited funding pot, the two projects are deeply intertwined, municipal market participants said. As Brightline Florida heads into what many expect to be a comprehensive in- or out-of-court restructuring, it may legally or reputationally entangle the West Coast system, which remains years away from being operational, participants said.
The sentiment among some investors is that Brightline Florida's current distress foreshadows Brightline West's future.
Brightline West is likely to face the same problems as Brightline in Florida: ridership issues, too much debt and not enough revenue to support that debt, said Nick Venditti, senior portfolio manager and head of the municipal fixed income team at Allspring Global Investments, which does not own either project.
The West Coast's problems may be even more significant as its route, from Rancho Cucamonga, Calif., to Las Vegas, Nevada, rather than from Los Angeles to Las Vegas, makes less sense than Florida's Miami to Orlando route, he said.
"We're going to be reliving this story on the West Coast in very short order," he predicted.
The train systems, which share the Fortress Investment Group-backed corporate parent, Brightline Holdings LLC, are facing pivotal financing moments. The Florida line, which operates as the nation's only privately owned train line, has spent months negotiating with creditors and outside lenders to try to drum up equity or new debt to stave off default and a freefall bankruptcy. It faces a fresh trio of debt payments due Wednesday.
Brightline West bondholders have been waiting for months to hear whether the Trump administration will approve a $6 billion Railroad Rehabilitation and Improvement Financing loan from the U.S. Department of Transportation's Build America Bureau that it
The RRIF loan is considered by investors to be critical to the project. The company originally said it expected to hear from the administration early this year, but for months the company's securities updates have said only that "Build America Bureau due diligence progressing."
A Department of Transportation spokesperson told The Bond Buyer the Build America "Bureau continues to work with the project sponsor to obtain the information required for the creditworthiness review."
The Federal Railroad Administration did not respond to a request for comment, although the FRA Administrator David Fink
Brightline West has said in filings it aims to raise $4 billion of bank debt, $4 billion of "other debt," $4 billion of equity and $3 billion of grant funding.
Brightline West
Brightline Florida's debt is concentrated in a relatively few hands including, on the municipal side, First Eagle, Nuveen and Invesco. Assured Guaranty insures $1.13 billion of the $2.2 billion of senior bonds and, as 51% owner, controls the senior bonds.
Some firms, like First Eagle, own both credits, but generally Brightline West's $2.5 billion of private-activity bonds are more dispersed across the market, said an investor who previously owned the project but sold in last year's debt exchange.
A Florida restructuring could have a contagion effect on Brightline West, the investor said.
"The west bonds are more of an event story in that the bonds will be ultimately taken out by a combination of federal funds and equity" assuming the RRIF grant is approved, the bondholder said. "So it's not about waiting for the trains to be operating and the cash flow to be generating — it's more headline driven" than Brightline Florida.
"But this is where rational thinking contradicts irrational behavior in the market," the investor said. "Assuming the bad event happens in Florida, the analysts and portfolio managers in the deal may hold the belief that the two stories are not connected, but then some risk management person or someone in management may turn around and give them a tap on the shoulder," the buysider said. "You can tell them your thesis all you want, but that outside force may say, 'We can't be involved with this any longer' and the bonds have to be sold."
Meanwhile, holders of Brightline Florida's "commuter" bonds and subordinate municipal bonds hold pieces of Brightline West equity that they won during previous renegotiations over debt payments. That could complicate the legal situation, said Lucas Hammonds, a distressed debt legal analyst at Octus and former corporate restructuring attorney.
"It is in one sense one large corporation, and if the domino of Brightline Florida were to fall, it's not clear exactly where it would stop," Hammonds said. "If it's a clean break they're looking for and they have a plan for Brightline Florida that can be contained, then maybe that happens."
It is, however, "well within the realm of possibility" that an in-court restructuring could implicate Brightline West, Hammonds said.
"The whole Brightline Florida [situation] raises questions about Brightline West," he added. Even if the company secures the $6 billion RRIF loan and additional equity, there remains a "huge funding hole" to get to $21 billion, he said.
"It seems to raise the question of who is going to fund that — when the example of the company that is up and running with a $5.5 billion capital stack is that it hasn't worked," said Hammonds. "I don't know who the market participants are who are going to jump in and fund Brightline West, and that could lead to a scenario where Fortress washes its hands of that as well."
The reputational risk to Brightline West is "difficult to quantify," Tim Hynes, Debtwire's head of global credit research said in an email. But the Florida project could lay out a possible future legal path if the West Coast project finds itself distressed.
"If Brightline West finds itself in a restructuring situation, the Brightline Florida restructuring could eventually be used as a template," said Hynes, who added he expects Brightline Florida to announce a comprehensive restructuring either in or outside of Chapter 11 in coming months.
After months of
The company also faces a Wednesday debt service payment on $1.2 billion of unrated subordinate municipal bonds, or AAF Operations Holdings bonds. The company can trigger a third — and final — deferred interest option for the July 15 AAFO payment.
Even as Florida races to raise debt or equity before its cash runs out, its ridership numbers are ticking up every month, said the second investor.
"There is an upward positive slope, so maybe they can get some equity," the buysider said. "I don't know if optimistic is the right word, but it's not a lost cause, yet."
Jessica Lerner contributed to this report.
