Florida passenger train bonds get speculative grade rating

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BRADENTON, Fla. – The private-activity bonds for Florida’s Brightline passenger train service received a non-investment grade rating from Fitch Ratings, reflecting its status as a new-market rail project.

Fitch said it expects to assign a BB-minus rating to the $600 million of tax-exempt bonds, after the deal is finalized.

Pricing of the 30-year bonds is on track for Thursday, with Morgan Stanley as the lead manager.

“The rating reflects Brightline's standing as a new-market, U.S. luxury rail project that exhibits uncertain demand and revenue generation potential,” said Fitch analyst Stacey Mawson. “Uncertainty surrounding demand and willingness to pay constrains this rating to non-investment grade.”

All Aboard Florida - Operations LLC, doing business as Brightline, is a privately owned intercity passenger rail system with start-up service that will initially connect Miami, Fort Lauderdale and West Palm Beach, with introductory service between West Palm Beach and Fort Lauderdale expected to start next month, and service to Miami starting the first quarter of 2018, according to Fitch. Company officials have said they remain committed to completing Phase 2 of the project, from West Palm Beach to Orlando.

Between Miami and West Palm Beach, Brightline is targeting in a small corridor market share of only 0.74% of trips in a densely populated and congested service area that needs additional transit options, a factor that Fitch found favorable for the project.

“The BB-minus rating is supported by strong breakeven analysis, which shows under sponsor case assumptions that Brightline achieves breakeven levels if stabilized ridership is 44% lower than projected,” Mawson said. “Sufficient reserve funds and a $50 million working capital revolver can support operations even under delayed ramp-up scenarios up to six years.”

A Brightline official declined to comment about the rating.

The company has not released ticket prices. However, the standard fare is expected to be $46 for a passenger traveling the 67 miles from Miami to West Palm Beach, company officials said in an Internet roadshow presentation.

The $600 million of bonds are expected to be sold only to qualified institutional buyers per Rule 144A of the Securities Act of 1933.

The Internet roadshow presentation said buyers will receive a first priority lien on most assets of Brightline Operations, including revenues, its passenger rail easement, stations, rolling stock, and its leasehold interest in a repair facility and parking garages.

All Aboard Florida will use proceeds of the U.S. Department of Transportation-approved PABs to refinance existing debt obtained to construct the Phase 1 south Florida segment, as well as pay for capitalized interest, a debt service reserve fund, and issuance costs.

A majority of the proceeds will be used to pay off higher coupon debt - $504 million in taxable senior secured notes and $98 million in a rolling stock credit facility – that the company and its affiliates had borrowed from institutional investors and banks, according to an analysis by the Florida Development Finance Corp.’s Financial Advisor Jeff Larson.

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Private activity bonds Revenue bonds Primary bond market Ratings Transportation industry Tax-exempt bonds Florida Development Finance Corp. Florida