Brightline wants to end deal with Virgin, which objects

The news came as a shock: Brightline, Florida’s most ambitious rail project since the Flagler era, said it planned to ditch the Virgin brand.

It was an abrupt turnaround given the fanfare with which the original partnership was greeted just last year.

But the announcement reflects how the coronavirus outbreak has sparked a global financial shakeup, one that has seen Brightline push forward on its route to Disney World while the Virgin brand struggles to regain its footing in South Florida and around the world.

In a filing Friday, express rail operator Brightline Trains LLC said it was seeking to sever its licensing agreement with Richard Branson’s Virgin Enterprises. Virgin is disputing the termination; a Virgin spokesman declined to comment.

Despite initial ridership struggles, financial filings show that, for now, Brightline remains on firm financial footing. Even as it suspended service in May, Brightline’s bonds received an Aaa rating that same month from Moody’s. The credit service said Brightline had enough money in an escrow account “for full and timely debt service payments.” Brightline has borrowed a total of $2.7 billion through tax-free privateactivity bonds to finance its project and has previously said it has prepaid interest due through 2021.

Brightline itself continues to assert in financial disclosures that it can withstand a prolonged shutdown, despite suffering a $66 million operating loss in 2019 after carrying just over 1 million riders.

“The suspension of service is not expected to have a material net financial impact on our business and we have access to ample operating liquidity to withstand a protracted slowdown in the travel market,” Brightline has said in consecutive financial filings.

In the same document announcing its Virgin termination notice, the company said it now expects a “meaningful access fee payment from Miami-Dade County in exchange for starting commuter service on its rail corridor, a development the Miami Herald reported in June. The commuter routes are to be facilitated by additional stations Brightline is now developing in Boca Raton, Aventura and PortMiami. In filings, Brightline has said that these three stations alone could yield $125 million in new annual revenues.

Meanwhile, on Friday, Virgin Atlantic airlines filed for special bankruptcy protection in the U.S. as it races to secure a $1.5 billion rescue plan. That followed a May announcement that Virgin Voyages would be pushing back its maiden sailing until at least

October, and an April bankruptcy filing from Virgin’s Australia airline.

Meanwhile, Virgin’s train operations in England were suspended in late 2019.

Joseph Krist, a municipal bond market analyst, said it appeared Virgin’s flagging fortunes convinced Brightline investors that the partnership with the now-hampered brand would no longer pay off.

“Given everything that’s happening with them, the investors probably just decided it wasn’t worth it anymore,” Krist said.

Full terms of the deal were never revealed. While Virgin was said to have taken an unspecified small equity stake in Brightline when the partnership was initially announced in late 2018, financial disclosures indicate that transaction may never have been consummated; Brightline says Virgin no longer has any equity ownership in any of its corporate interests.

That includes downtown’s Virgin MiamiCentral station, which would be stripped of the Virgin moniker if the licensing termination is successful.

A Brightline spokesman declined to comment.

Investors continue to take the long view on the Miamibased rail company. While Brightline’s 6% bonds continue to trade below par, Brightline recently re-marketed a portion of its bonds at a 0.55% coupon; recent trades show these are trading at par.

Even amid the pandemic, analysts continue to express confidence in Brightline’s prospects, in large part thanks to a longer timehorizon that likely will exceed pandemic-related issues.

“Even though the early results are somewhat delayed and some people have criticized them as a disappointment, it’s still in an early stage of the ramp-up,” John V. Miller, head of municipal fixed income at Nuveen, told Forbes in a lengthy June profile. His company holds $1.4 billion, or 80%, of the project’s total debt.

Brightline’s fortunes also go west. Last month, Brightline got clearance to market another set of bonds to finance an express line from Las Vegas to Southern California. This so-called XpressWest line, if realized, is projected to transport up to 10 million passengers annually from Las Vegas to the Los Angeles area in 85 minutes at speeds of up to 200 miles an hour, according to a release. Its expected completion date is 2023 — a year after Brightline hopes to open in Orlando.

The western operation is expected to cost nearly $5 billion.

Both California and Nevada governments have signed off on the project.

“This plan creates jobs without using taxpayer dollars and without impacting our state’s ability to finance future projects, and will allow a new, convenient mode of transportation between Nevada and California,” Nevada Gov. Steve Sisolak said last month.