Brightline, a privately owned passenger train service in Florida, recently made headlines with its bond issue in the tax-exempt market. The company offered over $3.1 billion of low-investment grade and unrated bonds, some of which had yields as high as 12%. Despite the risky nature of these bonds, there was strong demand for all of them, with more than 50 accounts vying for the investment-grade portion of the deal.
Brightline made its investment-grade debut with a $2.2 billion deal, while the unrated tax-exempt bonds, totaling $925 million, were issued by a subordinate borrower responsible for a planned extension to Tampa. The company, backed by the Fortress Investment Group, has about $3.75 billion of debt outstanding in the high-yield municipal market, all of which will be replaced by the new debt.
The bonds saw tightening spreads and increased in size slightly during the initial offering. Ratings agencies such as S&P Global Ratings, Fitch Ratings, and Kroll Bond Rating Agency gave the bonds BBB-minus and BBB ratings. Some of the bonds carried insurance from Assured Guaranty, further increasing their appeal to investors.
The unrated bonds offered a high 12% coupon and yield, but that came with increased risk. The speculative nature of the extension to Tampa was a cause for concern, according to experts in the municipal bond market. The mandatory tender date of July 2028 and the early callable date added to the risk associated with these bonds.
Despite the risk, investors were still attracted to the high yields offered by Brightline’s bond issue. The lack of high-yield supply in the market, coupled with Brightline pulling out over $2 billion from the high-yield market, created a favorable environment for demand. The company’s high-profile status in the market also contributed to the success of the deal.
Brightline’s bond issue was a risky investment with high yields, attracting investors looking to capitalize on the potential returns. While the company’s strong presence in the market and the favorable technicals at the time of the offering played a key role in its success, the speculative nature of the project in Tampa raised concerns among some investors. As the company moves forward with its plans, only time will tell if the high yields were worth the risk for investors.