With a name change to Virgin Trains in the offing, and an IPO, the private owners of the All Aboard Florida/Brightline passenger train project negotiated settlements with two of four plaintiffs challenging its private activity bond allocation in federal court.
Martin County, Florida, and the nonprofit group Citizens Against Rail Expansion in Florida approved agreements with the train’s private owners and pulled out of the litigation on the eve of a pivotal hearing Tuesday.
The deal helps AAF Holdings LLC, operating as Brightline LLC, clear a legal obstacle toward meeting a Dec. 31 deadline imposed by the U.S. Department of Transportation to issue $1.15 billion of private activity bonds to finance portions of the second phase of its project from West Palm Beach to Orlando.
Brightline reportedly plans to issue the bonds in December, although the company would not comment for The Bond Buyer Tuesday about its financing schedule.
The federal lawsuit and pending bond issue remain on the radar as Brightline prepares to rebrand itself as Virgin Trains USA in an affiliation with British billionaire Richard Branson’s Virgin Group.
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
Martin County and CARE filed a joint stipulation of dismissal with prejudice Monday in the federal lawsuit, saying the settlement of their case against Brightline provided significant concessions, including safety and maritime benefits and cost savings both had pursued during litigation.
Brightline also agreed to place a train station in Martin or St. Lucie counties – both in the Treasure Coast - within five years and pay half of the cost to build it, with local government paying the other half.
“Staff has worked diligently to negotiate a favorable outcome for Martin County residents,” said County Attorney Sarah Woods. “With this settlement, we've achieved our ultimate goal of increasing safety measures along the rail corridor while limiting future financial obligations.”
Indian River County and the Indian River County Emergency Services District are still pursuing the federal suit. The County Commission voted 4-1 on Nov. 20 to reject Brightline’s proposed settlement.
“Over the past year we’ve been focused on developing a more constructive and cooperative relationship with the Treasure Coast in hopes of bringing all parties together,” Brightline said in a statement. “We appreciate the work of Martin County and CARE to bring this to a resolution and while disappointed in this vote [by Indian River County], our project will continue moving forward.”
U.S. District Court Judge Christopher Cooper heard oral arguments Tuesday on motions for summary judgment filed by Indian River County, AAF Holdings, and the USDOT. Cooper could take months to issue a ruling.
Martin County, Indian River County, CARE and the Indian River County Emergency Services District filed suit against the USDOT on Feb. 13 in the U.S. District Court for the District of Columbia.
The joint suit challenged the federal transportation agency’s allocation of PABs for Brightline’s second phase, and contended that safety and environmental laws were not properly followed.
Brightline’s lawsuit settlement offer to Indian River County would have provided the installation of safety mechanisms above those required by the federal government, such as more than 30 miles of fencing on either side of the tracks. The offer would have saved the county between $2.5 million and $8.2 million, although the county would eventually incur some additional maintenance costs.
Indian River County Commissioners cited a number of problems with the offer, including provisions that would have prevented the county from opposing, legally challenging and lobbying — or encouraging others to do the same — on any federal, state or local approval, permit, authorization, regulation or financing plan affecting the Brightline project during construction of the West Palm Beach-to-Orlando segment, and for the first five years after revenue operations begin. Work on the route has not started.
Indian River Commission Chairman Bob Solari said the restrictive provisions in the settlement agreement “totally takes us out of the fight, which is untenable,” because they would prevent the county from taking action if unforeseen problems with the high-speed train arose while the restrictions were in force.
The passenger train will travel through Indian River County at speeds up to 110 mph along an existing railway along the east coast shared with freight trains that currently operate at speeds up to 60 mph. There are about 30 at-grade railroad crossings in the county.
“This is an existential issue for Indian River County,” Solari said, referring to years of efforts by the county trying to block the train. “To me this is a moral obligation and we had it since we took office to support the health, safety and welfare of the people of Indian River County.”
During a public hearing Nov. 20, a number of speakers encouraged Indian River County Commissioners to pursue the litigation rather than settle.
“This lawsuit has tremendous merit,” said Indian River Shores retiree Peter Seed, who prefaced his remarks by saying he was a public finance attorney for over 30 years. “I think you have an excellent chance of prevailing ultimately.”
Seed, who worked at the law firm of Briggs and Morgan Professional Association at its St. Paul, Minnesota, office, said he retired at the end of 1998 and moved to Indian River Shores.
He declined to be interviewed by The Bond Buyer about the specific reasons he believes the litigation may be successful because he said the lawsuit is at a “highly sensitive stage” with motions for summary judgment under consideration.
After rejecting the settlement offer, county commissioners voted to allocate another $1 million “to the efforts to address and prevent this train from going through our county,” according to the funding motion by Commissioner Joseph E. Flescher. The county has spent about $3 million so far.
Martin County and CARE signed settlement agreements with the same restrictive provisions allowing the train project to proceed without their interference during construction and five years after start-up.
During his discussion opposing a settlement, Solari said Florida lawmakers may address regulations for passenger trains in coming session after ordering a study earlier this year.
The Legislature’s Office of Program Policy Analysis and Government Accountability released the
The study, conducted for OPPAGA by the consulting firm CPCS, reviewed the state’s four passenger rail systems, which operate over 600 miles of railroad lines in Florida. Two intercity operators, Amtrak and Brightline, both operate on track owned by freight railroads. The commuter rail systems SunRail and Tri-Rail operate on state-owned tracks shared with freight trains.
The CPCS study found that deaths among Florida passenger trains are higher than the national average, a point raised by Solari.
Between January 2009 and June 2018, there were 137 fatalities in the state among passengers, non-passengers, and railroad employees, according to the state’s study. “Florida’s injury rate is 1.5 times higher and its fatality rate is 3.5 times higher than the overall nationwide rate,” it said.
Florida's roads are hardly a safe haven;
The study also examined the Federal Railroad Administration’s requirement that Positive Train Control be installed by the end of 2018. PTC is a system of signaling and communication devices that help detect and reduce the risk of train collisions, derailments, incursions in work zones, and movement through a misaligned route.
The study, citing FRA data through June 30, said only freight carrier CSX was close to implementing PTC. Tri-Rail, SunRail and Florida East Coast Railway, which owns the tracks used by Brightline, “have only begun the process of PTC implementation in 2018.”
It found several key issues with Florida’s passenger rail system, including a high rate of severe injuries and fatalities and high levels of trespassing incidents on railroad right-of-way due to rail services operating in dense urban areas.
There are also gaps in regulations that are specific to higher-speed rail operations, including those covering areas that could be regulated by FDOT such as railroad crossing design standard requirements for higher-speed operations between 81 mph and 125 mph, the report said.
It recommended that the state clarify FDOT’s mandate concerning oversight of passenger rail with respect to maintenance, safety, revitalization, and expansion.
Brightline, and now through its partnership with Virgin Trains, shows no sign of slowing down developing the nation’s first privately owned intercity passenger train system in more than a century.
The prospectus filed by Virgin Trains outlines plans for future expansion and train stations, including a possible stop at Walt Disney World, though that is not far from the planned terminus at Orlando International Airport. The map of the project’s route doesn’t show a station in the Treasure Coast.
The prospectus covers a series of general legal events that could impact the project, but doesn’t mention the pending federal lawsuit.
In December 2017, the Florida Development Finance Corp. issued $600 million of PABs on behalf of AAF to finance the first phase of its service from Miami to West Palm Beach, which has been in full operation since May 19. The FDFC has also agreed to be the conduit issuer for the upcoming sale of $1.15 billion for phase 2.
AAF has also applied for a low interest Railroad Rehabilitation and Improvement Financing loan through the Federal Railroad Administration to finance phase 2, but has declined to say whether it will use the loan program or PABs, or both.
Earlier this year, the company submitted the only proposal to lease rights of way owned by FDOT and the Central Florida Expressway Authority to expand passenger rail service from Orlando to Tampa. FDOT said it expected to make a decision on the proposal Wednesday.
The company also plans to offer passenger rail service between Las Vegas, Nevada, and Southern California after
