(Bloomberg) — Brightline, the first private U.S. passenger railroad in more than a century, received investment-grade ratings on its proposed senior municipal bonds ahead of a planned $3.6 billion debt refinancing.
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S&P Global Ratings assigned a preliminary BBB- rating, its lowest investment grade rating, to Brightline’s $2 billion in tax-exempt bonds. The bonds are likely to be issued this month by Florida Development Finance Corp. Brightline expects Assured Guaranty to insure $1 billion of the tax-exempt debt.
The Fortress Investment Group-backed rail company, which launched long-haul service between Miami and Orlando in September, also plans to sell $1 billion in speculative-grade corporate bonds with yields in the high single digits to low double digits, Bloomberg previously reported. Another $1.6 billion in debt and equity could come from Fortress or other investors.
Morgan Stanley is leading the sale of new issues of income bonds, according to an April 2 pre-offering filing.
The bonds also received preliminary designations of BBB- from Fitch Ratings and BBB from Kroll Bond Rating Agency. Investment-grade ratings and bond insurance should expand the market for high-speed rail’s municipal debt and lower borrowing costs, market watchers say. Brightline’s current bond debt is unrated.
“The preliminary assessment reflects that the project is a first-of-its-kind rail system,” S&P said in a statement on Tuesday. “It is fully exposed to vehicle and operational risks.”
Ben Porritt, a spokesman for Brightline, declined to comment.
The rail service, which carried about 230,000 passengers in February, began its short-distance service between Miami and West Palm Beach in 2018. Brightline carried 2.1 million passengers in 2023 and currently projects that the number of more profitable services long-distance will grow to 4.3 million in 2026, while its rail line will carry 3.7 million.
Breathing room
Brightline is betting on replicating Amtrak’s Acela high-speed service model in the Northeast with better amenities. The railroad says travelers between Miami and Orlando — both major tourist destinations and business centers — can avoid the stress of a congested four- to five-hour drive as well as the hassles of air travel.
The rail service makes the journey in 3 hours and 30 minutes, reaching speeds of up to 125 miles per hour.
In addition to paying off Brightline’s currently unrated senior tax-exempt bonds and taxable debt, the proceeds will fund nearly $550 million in reserves that S&P sees as mitigating against potential customer and revenue declines, as well as 12 months of debt service .
The refinancing — excluding $985 million in subordinated muni bonds — will give Brightline some breathing room, allowing it to extend the growth of operations through 2028 from 2026, according to S&P.
After the run-up period, S&P predicts in its base case that Brightline will have nearly 2.7 times earnings to cover debt service in 2030, or just 1.4 times in its downside case. S&P’s baseline scenario suggests revenue estimates of 38% to 55% below Brightline’s estimates and 52% to 71% lower for its downside case.
Brightline estimated that the long-distance travel market by residents and visitors between South Florida and Central Florida was about 35 million in 2019, with 99% traveling by car, and will grow to more than 38 million in 2026.
Brightline saw a 50% increase in bookings between October and January, driven mainly by a growing base of repeat customers, according to S&P. Still, Brightline cut its 2024 ridership forecast by 30% to about 5 million, citing a delay in opening the Orlando line.
“The local target population has historically tended to travel by car,” S&P said. “But we believe that given the increase in bookings and revenue year-to-date, Brightline should at least meet our baseline forecast.”
–With help from Skylar Woodhouse.
(Updates with context throughout, including details of the reissue deal in the fourth paragraph.)
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