Brightline refinancing seen as ‘challenging’ and ‘complex’

A much-anticipated $2 billion borrowing from Florida’s Brightline passenger train could price as soon as next week — if the company succeeds in placing another roughly $2.75 billion of debt.

Investors met this week with the Brightline Trains Florida LLC finance team, led by Morgan Stanley, in a series of meetings on the East Coast to promote the $2 billion bond deal that marks the investment-grade debut of one of the high-yield market’s most prominent credits.

The nation’s first privately financed passenger train to begin operations in more than a century, Brightline covers the 235 miles between Miami and Orlando, Florida in roughly 3.5 hours, with speeds up to 125 miles-per-hour. The company is backed by Fortress Investment Group LLC.

The muni deal could price as soon as next Wednesday and Thursday, depending on whether the team can place the rest of the debt that’s needed to complete an overhaul of Brightline’s capital stack.

Investors say that in addition to the $2 billion of investment-grade tax-exempt bonds, Brightline is looking to sell roughly $1.25 billion of subordinate taxable paper carrying high-yield ratings and issued by a holding company underneath the operating company that is issuing the muni bonds. Another roughly $1 billion of unrated subordinate taxable debt is also being floated as well as $500 million of “preferred securities” that are expected to be placed with banks.

A Brightline spokesperson did not respond to requests for comment.

Up to $1 billion of the $2 billion tax-exempt deal will include Assured Guaranty insurance, which along with the investment grade rating is expected to broaden retail appeal.

The team needs to sell all the debt together in order to take out its roughly $3.7 billion of outstanding unrated senior debt that has financed the $6 billion project. 

“This deal is interesting because we’re finally seeing the operating company being separated from the holding company,” said an investor. The team is “marketing slices of risk” divided between the holding and operating companies, the investor said.

“They have a very challenging capital raise because of the Holdco piece; it’s complicated,” the investor said, adding that early price talk on the taxable high yield paper is in the double-digits.

The decreased debt load associated with operating company “makes it more difficult for the Holdco,” the source said. “At least the operating company starts to look a little more like a business that can pay back its debt.”

The marketing process has been “very siloed,” said Jim Lyman, a senior vice president at Belle Haven Investments, which owns existing Brightline bonds. “We don’t know a lot about the structures of the other deals.”

The finance team “did a great job on their presentation” at the New York road show, Lyman said. “It was very clear and there was a lot of information, which is one of the reasons I think the deal on the muni side is well primed.”

Restructuring the capital stack will deleverage the muni side, Lyman said, adding that other positives include conservative financial models and recent ridership and revenue numbers that signal sufficient debt coverage.

In operation since 2018, Brightline has been one of the market’s largest speculative-grade project finance deals.

Despite its prominence in the market, its “miniscule buyer base” has meant “limited price discovery,” said Vikram Rai, head of Wells Fargo municipal market strategy, during a client call this week. Wells Fargo Securities LLC is one of the underwriters on the deal.

The investment grade ratings and insurance wrap “will broaden the opportunity to buyers with IG-only mandates and improve liquidity and price discovery,” Rai said. The dearth of high-yield supply will likely boost demand as will current market technicals, he said.

The refinancing will take out one of the high-yield market’s most well-known names, said Dora Lee, Belle Haven’s director of research and partner.

“The universe of highly liquid high-yield names is diminishing and increasingly the high-yield names are smaller issuers,” Lee said.
 
S&P Global Ratings and Fitch Ratings have assigned the tax-exempt bonds a preliminary rating of BBB-minus with a stable outlook. Kroll Bond Rating Agency pegs the debt at BBB/stable.