Florida’s passenger train owners get more PABs while preparing next deal

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The U.S. Department of Transportation has approved another allocation of private activity bonds for Florida’s passenger train project as the private owners of the company prepare to come to market under a new name.

The USDOT on Friday authorized $950 million in additional PABs for Brightline, soon to be known as Virgin Trains USA.


The new allocation brings the company’s total of new, unissued PABs under the DOT’s Build America Bureau to $2.1 billion.

While the bonds can be issued in tranches, all the debt must be issued by June 30, 2019, Under Secretary of Transportation for Policy Derek Kan told AAF Holdings.

“Any portion of the PAB authority allocated for the project that has not been used for the issuance of bonds by that date will automatically return to USDOT’s remaining aggregate amount of PAB authority, and will be available for allocation to other eligible applicants,” Kan wrote.

The company borrowed $600 million of PABs in 2017, making the total federal allocation $2.7 billion, the largest ever awarded to a borrower.

The new PAB authority was received as the company, formerly All Aboard Florida or AAF, prepares to market a bond deal under the new name of Virgin Trains USA.

On Wednesday, a preliminary offering memorandum was released showing that the company plans to issue $1.5 billion of tax-exempt bonds subject to the alternative minimum tax.

The Florida Development Finance Corp., a statewide financing agency, is the conduit issuer.

Proceeds of the deal will be used to pay or reimburse costs of the project from Miami to Orlando and refund $600 million of bonds issued in 2017.

The bonds will also pay for capitalized interest, fund reserves, and issuance costs.

Morgan Stanley is the sole underwriter. Greenberg Traurig PA is bond counsel. Mayer Brown LLP is underwriters’ counsel.

Only qualified institutional buyers will be allowed to purchase the bonds, which will be issued in denominations of $100,000.

The bonds are expected to price the first week in April, according to a banker who asked not to be identified.

The deal will be marketed as the company continues to litigate the legality of the PABs in federal court.

Indian River County on Jan. 29 filed an appeal of Federal Judge Christopher Cooper’s December ruling granting motions for summary judgment sought by the USDOT and Brightline.

That ruling was based in part on a determination that Brightline qualified for the PABs under Title 23 of the Federal Highway Administration as a surface transportation project. Cooper also agreed with other arguments made by the USDOT and Brightline.

The appeal is pending.

In bond documents for the upcoming sale, the company said it believes that Cooper’s decision is “well reasoned and addresses all issues in the matter.” The company said it has a “high degree of confidence” that Cooper’s ruling will be upheld.

Indian River County has also filed a separate complaint in state court asking a judge to determine if the private owners of the train company can benefit from the county’s 32 at-grade highway crossing agreements with Florida East Coast Railway.

The county contends that it has not given permission for the passenger train to use its crossing, and shouldn’t be required to pay for added safety improvements to support it.

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Transportation industry Private activity bonds Sell side Lawsuits Florida Development Finance Corp. Florida
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