Florida’s Brightline passenger train has recently taken steps to restructure its debt by adding a substantial amount of unrated tax-exempt paper to the mix. This move comes as the company looks to price the new debt in the near future, with initial price talks ranging between 11% and 15%. The bonds in question are subject to the Alternative Minimum Tax and are targeted towards qualified institutional buyers under Rule 144A, with minimum denominations of $250,000.
Brightline Trains Florida LLC, the high-speed line operating company between Miami and Orlando, is planning to bring $2 billion of tax-exempt private activity bonds to the market in the upcoming weeks. However, this deal is part of a larger debt restructuring that has been described by investors as “challenging”. The success of this restructuring hinges on the sale of additional subordinate tranches, including $1.25 billion of subordinate taxable paper, $1 billion of unrated subordinate taxable debt, and $500 million of bank-placed “preferred securities”.
The goal of these deals is to refinance approximately $3.7 billion of tax-exempt unrated high-yield bonds and to fund more than $500 million in reserve accounts during a ramp-up period. The existing debt is mostly owned by Nuveen and plays a significant role in the high-yield municipal bond market. The restructuring aims to streamline the debt structure and make it more manageable for the company in the long run.
While the new tax-exempt tranche amounts to around $800 million, there are significant risks involved in this restructuring. Brightline, backed by Fortress Investment Group, plans to extend its services to Tampa, with a separate entity, Brightline Tampa LLC, guaranteeing the payment and performance of the unrated tax-exempt piece. The bonds are expected to be structurally senior to the HoldCo’s existing or future debt, but subordinate to the investment-grade tax-exempt debt.
S&P Global Ratings and Fitch Ratings have assigned a preliminary rating of BBB-minus with a stable outlook to the senior tax-exempt bonds, while Kroll Bond Rating Agency rates the debt at BBB/stable. Assured Guaranty is expected to insure approximately $1 billion of the $2 billion investment-grade piece. This external validation and insurance play a crucial role in attracting investors and ensuring the success of the debt restructuring.
The debt restructuring undertaken by Brightline poses significant challenges and risks, but also presents opportunities for the company to streamline its finances and pave the way for future growth and expansion. By carefully managing the debt restructuring process and seeking external validation through ratings and insurance, Brightline can navigate the complex municipal bond market and emerge stronger on the other side.