Florida's Brightline clears legal hurdle, gets financing extension

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Two federal decisions may clear the way for the private owners of Florida’s passenger train system to issue $1.15 billion of private activity bonds and to pursue a low-interest federal loan to finance its project.

Federal District Judge Christopher Cooper on Christmas Eve threw out a suit by Indian River County that claimed the U.S. Department of Transportation improperly approved the bond allocation for Brightline, formerly All Aboard Florida.

Cooper granted motions for summary judgment sought by the USDOT and Brightline, which will soon be renamed Virgin Trains USA.

The company also received more time to issue the PABs.

On Friday, the USDOT approved a six-month extension of the Dec. 31 deadline to issue the bonds, indicating that it will be the last time it will consider such a request.

Brightline expects to sell the debt in January “as a market existed to sell the bonds and it was difficult to predict how long that window of opportunity would last,” the company said in a court filing.

“We appreciate Judge Cooper’s well-reasoned ruling,” said Brightline Spokeswoman Ali Soule. “The court’s decision adds momentum to our efforts of connecting Orlando to South Florida. We remain focused on exploring locations for a Brightline station in the Treasure Coast and are encouraged by the tremendous amounts of support we have received in the region.”

Indian River County may appeal Cooper’s decision.

“We’re disappointed [with the ruling] but we’re discussing with outside counsel our options on how we move forward,” Assistant County Attorney Kate Cotner said Wednesday. “There will be a public discussion about it.”

The County Commission, which recently hired an attorney to file a new lawsuit to determine if the county must fund improvements needed by Brightline at railroad crossings, holds its next meeting on Jan. 8.

Prior to the decision giving Brightline more time to issue the bonds, a key Congressional player wrote to Transportation Secretary Elaine Chao urging her to approve the extension.

“I thank the secretary for her quick action on this matter,” Rep. Mario Diaz-Balart, R-Miami, said Wednesday. “She and the department continue to recognize the importance of Brightline and the positive impact its expanded service would have in Florida.”

Diaz-Balart, who is currently chairman of the House Transportation, Housing and Urban Development Subcommittee, said he will continue to work with Chao on the Brightline project “to move it forward.”

In addition to giving the company more time to issue the PABs, the USDOT said the bond extension would provide Brightline with time to complete its application for a Railroad Rehabilitation and Improvement Financing program loan, according to the Dec. 21 letter from the USDOT.

“The department understands that the extension will provide AAF/Brightline with additional time to complete the underwriting of a potential RRIF loan and close on subordinate PABs and taxable subordinate bonds,” wrote USDOT Under Secretary of Transportation for Policy Derek Kan.

All Aboard Florida filed an application in July 2017 for a direct RRIF loan to finance work between Miami and Orlando, the Build America Bureau’s website shows.

The website doesn’t indicate the amount of the requested loan, although it says the cost of building the route is $3.074 billion.

The website says that an eligibility review has been completed and a credit committee is determining if the company will received an invitation to file a formal application.

Brightline, which has faced litigation much of the time since it was granted three PAB allocations, appeared to be warned that Friday’s USDOT’s extension could be its last.

“Any amount of unused bond allocation following an initial bond issuance will automatically return to USDOT's remaining aggregate amount of private activity bonds, and thus be available for other eligible applicants,” Kan wrote to Brightline Vice President Kolleen Cobb.

The most recent allocation, $1.15 billion to finance portions of the route from West Palm Beach to Orlando, was granted in December 2017 with the USDOT setting a May 31 to issue the debt.

With federal litigation pending, the company requested more time to sell the bonds. The USDOT gave the company until Dec. 31, which has now been extended a second time to June 30.

Meanwhile, another legal dispute is brewing over who funds highway crossing improvements recommended by federal agencies that reviewed the passenger train project.

Indian River County commissioners voted unanimously Dec. 11 to file a new lawsuit seeking a declaratory judgment to determine if the county or Brightline must pay for improvements needed at the county’s 32 at-grade highway crossings.

Brightline approached Indian River County in 2013 asking that the FECR agreements be amended to make the company, then known as All Aboard Florida, a third-party beneficiary. Brightline has agreements to use FECR railroad lines.

The county refused to amend the agreements, but the company must make capital improvements at crossings to support its higher-speed intercity passenger trains.

Murphy & Walker, in preliminary research into the case, determined that without amendments to the FECR agreements Brightline cannot pass on its railroad crossing maintenance and installation costs to the county, commissioners were told at the Dec. 11 meeting.

A declaratory judgment would define the terms of the crossing agreements.

Indian River County has estimated it would cost it $8.2 million through 2030 to maintain Brightline’s safety improvements, Indian River County Attorney Dylan Reingold testified before the House Committee on Oversight and Government Reform’s Subcommittee on Government Operations in April. The crossing agreements are in perpetuity.

The county, which has 146,000 residents, won’t be able to limit taxpayers' costs because the county has no control over the costs, he said.

Reingold also told the committee that the county opposes the higher-speed passenger train “because it is not safe and because All Aboard Florida is seeking to pay its bills with taxpayer dollars from the pockets of our constituents.”

Although Brightline has faced legal challenges, the passenger rail company is forging ahead with work on its second phase between West Palm Beach and Orlando and planning for its third phase from Orlando to Tampa.

Patrick Goddard, president of the company, told the Central Florida Expressway Authority Dec. 13 that service between Miami and West Palm Beach is “ramping up very nicely” and experiencing strong growth.

Goddard said contractors have been selected to build the West Palm Beach to Orlando segment. It is estimated that construction will take 30 to 36 months.

“We expect the first train to roll into the new intermodal terminal facility at the Orlando International Airport in the fourth quarter of 2021 or the first quarter of 2022,” he said.

In late November, the company received approval from the Florida Department of Transportation and the Central Florida Expressway Authority to negotiate leasing the rights of way it needs to extend passenger service 88 miles between central Florida and the west coast.

Brightline announced the strategic partnership and trademark licensing agreement Nov. 16, the same day it closed the deal, with Virgin agreeing to make an undisclosed minority investment in the train project.

Fortress Investment Group LLC will retain majority ownership of Brightline, and its current management team will remain in place. The company will transition its consumer facing brand to Virgin Trains USA during 2019.

Virgin Trains also filed a form S-1 registration statement Nov. 16 with the Securities and Exchange Commission announcing its plan for an initial public offering of common stock. The date of the IPO and amount of stock to be issued have not yet been disclosed.

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Infrastructure Private activity bonds Transportation industry Lawsuits Florida Development Finance Corp. DOT