Virgin Trains secures California private activity bond allocation

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A California board allocated $600 million of tax-exempt private activity bonds to a proposed high-speed train connecting Las Vegas with Victorville, California.

The unanimous vote Tuesday from the three-member California Debt Limit Allocation Committee enables Virgin Trains USA to sell tax-exempt bonds for the private rail project.

“This is something that has come full circle,” said California Treasurer Fiona Ma, who chairs the board. “I know the Victorville-Apple Valley region was the last to recover from the Great Recession. Hopefully, you will be the first to recover after the pandemic."

California Treasurer Fiona Ma called the project a triple win.

Calling it a clean, green, mass transit system, Ma said it will be a triple win. “I know you have been waiting for this train and economic driver in your region,” she said.

The two- to three-year project is expected to create 20,000 jobs, according to local officials.

The former XpressWest project, which had been moving slowly, was kick-started in 2018 when it was purchased by Brightline.
It has since been renamed Virgin Trains USA, which also opened a short segment of a Florida private passenger train service that is to ultimately link Miami and Orlando.

Backers say customers from across southern California will drive across a mountain pass to Victorville — some 85 miles from downtown Los Angeles — then get off the highway to park and catch the train for a 200-mile-ride to Las Vegas.

The committee set an October deadline for the Fortress Investment Group-backed Virgin Trains project to sell bonds or lose the allocation.

Board members wanted to make sure if Virgin Trains failed to use the allocation, or was unable to price the bonds given market uncertainty, that the allocation would return to CDLAC.

The allocation had been tentatively approved and then frozen earlier this year because the federal Department of Transportation’s approval of its Record of Decision, an environmental ruling, seemed uncertain.

With the DOT’s approval a few weeks back of $1 billion of its own private activity bond allocation for the project, the board decided to approve the California allocation. The federal allocation comes with a similar deadline.

“There is no question that DOT is in support of this project,” said Judith Blackwell, executive director of CDLAC.

In addition to the funding support from DOT, an FRA spokesman has announced publically that it expects to issue its record of decision for that project this year, according to the CDLAC staff report.

Virgin Trains will next turn to the state of Nevada for approval of the allocation promised by that state. Following that, a spokesman for the company said, it will begin to craft the bond documents needed for a sale.

"Today, there is uncertainty in the market, hopefully there will be less uncertainty in mid to late summer, which is why we thought the Sept. 30 deadline DOT gave us was workable," the spokesman said.

Housing advocates have criticized using part of the state’s allocation of private activity bonds from the federal government for this purpose, given the state’s shortage of affordable housing.

Virgin Trains has said it can leverage the allocation into as much as $3.2 billion in tax-exempt bonds.

The California Infrastructure and Economic Development Bank is to be conduit issuer for the bonds.

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Private activity bonds California Infrastructure & Economic Development Bank California Fiona Ma
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