Brightline Florida outlook cut to negative by S&P

Bloomberg News

S&P Global Ratings lowered its outlook on its BBB-minus underlying rating on Brightline Trains Florida LLC's bonds to negative from stable.

The action on Wednesday affects $2.219 billion in tax-exempt bonds, S&P said. Of this total $1.13 billion is insured by Assured Guaranty and rated AA.

The outlook revision was due to "weaker-than-expected long-distance fares and uncertainty related to expenses," S&P said. The average long-distance fares were 19% lower than S&P's expectations.

Significant unexpected expenses led to a liquidity shortfall of $60 million at the end of December, S&P said.

S&P is projecting the project's liquidity will decrease to $19.6 million at the end of a ramp-up period, substantially less than the roughly $85 million previously anticipated.

S&P added that it expects a minimum debt service coverage of 2.42X in the ramp-up period, rather than the 2.57X the agency previously anticipated. The decline is primarily due to lower-than-expected long-distance fares.

Total revenues in 2024 were 18% below S&P's base case forecast and expenses were 6% higher. The project had unexpected information technology consulting and legal costs plus some catch-up insurance costs from shared operations with Florida East Coast Railway in 2024. Brightline's managers don't think these expenses will recur.

The ratings agency said it could lower the rating within 12 months if ridership and fare performance fall short of expectations or if expenses exceed expectations. If debt service coverage in the second phase of the project declines to somewhere between 1.5X and 2X, this could also trigger a downgrade.

Brightline has provided passenger rail service in Florida since 2017.

Brightline Florida is backed by Fortress Investment Group LLC.

Brightline Florida brought these bonds plus $925 million of unrated tax-exempt bonds and $1.325 billion in taxable senior secured notes to the market last spring. The Bond Buyer named the tax-exempt sale the Bond Deal of the Year for 2024.

Brightline Florida didn't immediately respond to a request for a comment.

The rated $2.2 billion in bonds are rated BBB-minus by Fitch Ratings and BBB by KBRA, both with stable outlooks. Both agencies released their last reports in May 2024.