BRADENTON, Fla. – All Aboard Florida has moved a step closer to financing the first phase of its privately owned passenger train project.
Though funding for the second phase of its Miami-Orlando route remains subject to federal approval, the U.S. Department of Transportation on Nov. 22 approved AAF's new application for $600 million of tax-exempt private activity bonds.
They must be issued by Jan. 1, 2018, according to one of six conditions USDOT imposed.
Bond proceeds will finance construction work on a 67-mile corridor from Miami to West Palm Beach, with a stop in Fort Lauderdale. Train stations are nearing completion in all three locations.
At the same time USDOT approved the new private activity bond allocation, the agency withdrew – at AAF's request – the previous application for $1.75 billion and said it would be "available for reallocation to other eligible applicants."
AAF President Michael Reininger told the USDOT in writing Sept. 30 that the company planned to submit a separate application for up to $1.15 billion of PABs for the second phase of the project, the remaining 168 miles between West Palm Beach and Orlando.
A USDOT spokesman on Monday said he would not confirm whether All Aboard Florida has submitted the second application, and referred the question to AAF.
"AAF remains fully committed to our vision of passenger service between Miami and Orlando and have continued to commit resources and attention to that pursuit," the company said in a statement, when asked about the status of phase two and if a bond financing application had been filed.
On Monday, USDOT and AAF each filed motions to dismiss federal lawsuits brought by Indian River and Martin counties.
The lawsuits are moot, both motions said, because the object of the complaints, the $1.75 billion bond allocation initially designed to finance the entire 235-mile project, no longer exists.
The new, bifurcated financing strategy is designed to head off a final ruling in the lawsuits that could have resulted in a precedent-setting decision subjecting future USDOT bond allocation decisions to the National Environmental Policy Act, if the projects they finance are required to undergo the rigorous environmental review process.
Martin County said it viewed the change in financing strategy as a "significant victory."
"DOT's withdrawal of the $1.75 billion PAB allocation appears to leave AAF with no current clear path to fund Phase II," the county said in a statement.
The second phase is the portion of the project that would "negatively impact the safety and way of life of Martin County residents and citizens throughout the Treasure Coast," the statement said.
The county said it is assessing steps to be taken next in the court case and the anticipated submittal of the second PAB application.
AAF's new financing strategy is "further visible proof that we are winning," said CARE-FL [Citizens Against Rail Expansion], which has raised funds for various efforts opposing the train such permitting and legal challenges.
"We have not yet defeated the project, but we are extremely heartened by our progress," Brent Hanlon, steering committee chairman of CARE, said in a statement. "We look forward to continuing this fight on behalf of the residents of our communities."
All Aboard Florida said it has the environmental clearances under the National Environmental Policy Act, including a "finding of no significant impact," as well as all necessary permits to complete work on the Miami-to-West Palm Beach route, which will use an existing freight rail corridor owned by sister company, Florida East Coast Railway.
Both AAF and FECR are owned by Fortress Investment Group LLC.
The second phase of the project has not received final NEPA clearance.
It will run 128 miles along the FEC rail line from West Palm Beach through Martin, St. Lucie, Indian River and Brevard counties, where no stops are currently planned.
At Cocoa, the train would turn inland across a new 40-mile spur to Orlando International Airport, which is building a multi-model transportation facility as part of a $3 billion expansion plan. AAF and other services such as the SunRail commuter train in central Florida will lease space there.
All Aboard Florida has said it plans to operate 16 daily Brightline-branded passenger trains along the Miami-to-West Palm Beach route traveling at speeds up to 125 miles per hour. That service is expected to begin in mid-2017, with the second phase to start at a later date.
The cost of tickets has not been released, although AAF has done studies discussing various pricing options.
The Florida Development Finance Corporation, a state-created conduit issuer, approved a bond resolution on Aug. 5, 2015 agreeing to issue $1.75 billion of private activity bonds for All Aboard Florida.
AAF had said initially that Bank of America Merrill Lynch was the senior managing underwriter for the deal, although its new PAB application did not mention the firm.
Greenberg Traurig PA is bond counsel.
The bonds will only be sold to qualified institutional buyers and accredited investors in essentially a private placement, and details will not be publicly available about the structure of the deal or when pricing will occur.
All Aboard Florida indicated in its new application for a $600 million allocation from USDOT that it planned to rely on the 2015 bond resolution to issue the debt for the first phase of the project.
CARE, Martin and Indian River counties in a joint letter to FDFC on Nov. 7 questioned whether All Aboard Florida would need to submit a new application for the new financing strategy or if the company could rely on the 2015 bond resolution.
FDFC Executive Director Bill Spivey said Tuesday that he had no information about whether All Aboard Florida would need to submit a new application.
"The applicant has not re-applied given their new financing plan," Spivey said in an email. "I have not seen anything."
Indian River and Martin counties filed lawsuits in early 2015 against the USDOT and the Under Secretary of Transportation for Policy challenging the original allocation of $1.75 billion in PABs given to All Aboard Florida.
Both counties said the bond allocation should not have been granted because a final environmental impact statement had not been issued for the West Palm Beach-to-Orlando segment.
Since that time, a final EIS has been released but the environmental review process has not been completed.
On Aug. 16, U.S. District Judge Christopher R. Cooper ruled for the counties and said that they had proved that the bond allocation should have been considered in the federal environmental review process.
Cooper's decision allowed the lawsuits to proceed, and that led to what attorneys call "corrective action" by USDOT and AAF – the new financing strategy - to avoid a final ruling in the suits.
If Cooper agrees with their pending motions to dismiss the lawsuits, USDOT will avoid potentially subjecting its private activity bond allocations to the NEPA process.
After the suits were filed, AAF attempted to issue the bonds several times without success, citing a volatile bond market, particularly during the months immediately before the Fed raised its target for the federal funds rate by 25 basis points in December 2015.
In his Sept. 30 letter to USDOT, Reininger said although the company was unsuccessful issuing the bonds it had continued to fund work on the entire project primarily through more than $900 million in equity.
"Since December 2015, we have been monitoring the status of the markets and evaluating potential options for an offering of PABs," Reininger wrote. "We are pleased to report that market conditions relative to bond financing began to improve earlier this year and have continued to improve to the point that we now believe we can conclude an initial offering of PABs on favorable terms in the near future."
The letter did not indicate when the bonds would be marketed.
The Fed is scheduled to meet Dec. 13-14 and many experts believe the bank is poised to again raise the federal funds rate.