Tim­ing Mat­ters for All Aboard Florida Fi­nanc­ing

The Bond Buyer - - Front Page - By Shelly Sigo

BRADENTON, Fla. – With time run­ning out to is­sue bonds, the pri­vately held com­pany build­ing Florida’s new in­ter­city pas­sen­ger train ser­vice moved a planned fi­nanc­ing to the front burner.

All Aboard Florida is now poised to take ad­van­tage of a $600 mil­lion pri­vate ac­tiv­ity bond al­lo­ca­tion from the U.S. Depart­ment of Trans­porta­tion to fi­nance Phase 1 of its sys­tem be­tween Mi­ami and West Palm Beach.

The USDOT’s au­tho­riza­tion to is­sue the tax ex­empt PABs ex­pires on Jan. 1.

In a spe­cial meet­ing Fri­day, the Florida De­vel­op­ment Fi­nance Corp. re­newed its agree­ment to serve as the con­duit is­suer of the

bonds on be­half of the bor­rower, All Aboard Florida – Op­er­a­tions LLC.

The board of di­rec­tors ap­proved a bond res­o­lu­tion and re­lated fi­nanc­ing doc­u­ments for the $600 mil­lion ne­go­ti­ated deal, said FDFC Ex­ec­u­tive Di­rec­tor Bill Spivey.

“They let us know on very short no­tice that they are want­ing to move for­ward on the bond” sale, Spivey said. “They are try­ing to get it done by the end of the year.”

Spivey said the board had al­ready ap­proved the project in 2015, when AAF had planned to is­sue $1.75 bil­lion of PABs to fi­nance the en­tire project from Mi­ami to Or­lando.

Fri­day’s meet­ing, he said, was an op­por­tu­nity to up­date the board on the sta­tus of project and re­view the “pared down” fi­nanc­ing plan.

All Aboard Florida re­quested that the USDOT re­duce the size of its PAB al­lo­ca­tion to $600 mil­lion from $1.75 bil­lion to fi­nance only Phase 1 in re­sponse to fed­eral law­suits filed by two coun­ties chal­leng­ing the PABs. The new fi­nanc­ing strat­egy worked.

Mar­tin and St. Lu­cie coun­ties, which filed the suits, are lo­cated along Phase 2 of the AAF project. The com­plaints were dis­missed in May.

Com­pany of­fi­cials have said in court pa­pers that they plan to re­quest a sep­a­rate PAB al­lo­ca­tion for Phase 2, from West Palm Beach to Or­lando, at a fu­ture date.

Phase 1 of the Bright­line-branded ser­vice is ex­pected to be­gin by year’s end.

The up­com­ing $600 mil­lion bond is­sue re­ceived ap­proval un­der the Tax Eq­uity and Fis­cal Re­spon­si­bil­ity Act on Aug.1, ac­cord­ing to a 156-page packet of ma­te­ri­als for the FDFC’s meet­ing Fri­day.

Bond pro­ceeds will be used to re­fi­nance ex­ist­ing debt that AAF ob­tained to build Phase 1, as well as pay for cap­i­tal­ized in­ter­est, a debt ser­vice re­serve fund, and is­suance costs, said a mem­o­ran­dum by FDFC Fi­nan­cial Ad­vi­sor Jeff Lar­son, pres­i­dent of Lar­son Con­sult­ing Ser­vices.

“Ac­cord­ing to the bor­rower and Fortress rep­re­sen­ta­tives, a ma­jor­ity of the 2017 pro­ceeds will be used to pay off higher coupon debt - $504 mil­lion in tax­able se­nior se­cured notes and $98 mil­lion [in a] rolling stock credit fa­cil­ity – that the com­pany and its af­fil­i­ates had bor­rowed from in­sti­tu­tional in­vestors and banks,” Lar­son’s memo said.

All Aboard Florida is cur­rently se­lect­ing the un­der­writ­ing team, and “it is not ex­pected to be able to achieve an in­vest­ment grade un­der­ly­ing rat­ing dur­ing the timetable to price and close a bond is­sue by cal­en­dar year end 2017,” Lar­son said, adding that the FDFC should as­sume that the bonds will be “either non­rated, or non­in­vest­ment grade rated.”

When AAF was pre­par­ing for the larger bond is­sue in 2015, Bank of Amer­ica Mer­rill Lynch was the se­nior manag­ing un­der­writer.

No in­for­ma­tion could be ob­tained from All Aboard Florida or Bright­line of­fi­cials about whether BofAML will be in­volved with the up­com­ing sale or any other de­tails.

“We are not go­ing to com­ment,” a spokesper­son said in an email to The Bond Buyer on Tues­day.

All Aboard Florida and Bright­line are owned by Florida East Coast In­dus­tries LLC, a pri­vately held com­pany based in Coral Gables, Fla., that spe­cial­izes in trans­porta­tion, in­fra­struc­ture and com­mer­cial real es­tate ven­tures. FECI is owned by pri­vate eq­uity funds man­aged by Fortress In­vest­ment Group LLC. Fortress merged with Ja­pan’s Softbank in July.

The pas­sen­ger train project has drawn op­po­si­tion, mostly along the east coast of the state north of West Palm Beach.

Mar­tin and St. Lu­cie coun­ties, where the trains will roll through but no stops are planned, each filed fed­eral law­suits in early 2015.

Dur­ing the course of the le­gal chal­lenges, the judge ruled that the coun­ties had proved that the $1.75 bil­lion of PABs first al­lo­cated to the en­tire project should have been con­sid­ered as part of a re­quired fed­eral re­view un­der the Na­tional En­vi­ron­men­tal Pol­icy Act. That rul­ing could have been prece­dent-set­ting.

When AAF re­vised its strat­egy to re­move PAB fi­nanc­ing for Phase 2 the fed­eral suits were dis­missed be­cause an ac­tual dis­pute in­volv­ing the coun­ties no longer ex­isted.

The two coun­ties have cited a num­ber of pub­lic safety, eco­nomic, and en­vi­ron­men­tal im­pacts with the train ser­vice that they say haven’t been ad­dressed by AAF. They have also said their costs to main­tain up­graded street cross­ings will in­crease.

The project is also op­posed by Cit­i­zens Against Rail Ex­pan­sion in Florida, a lo­cal or­ga­ni­za­tion com­posed of com­mu­nity groups, re­tirees, busi­nesses, cham­bers and lo­cal gov­ern­ments.

CARE FL Chair­man Brent Han­lon said the group con­tin­ues to be­lieve that All Aboard Florida shouldn’t have re­ceived the bond al­lo­ca­tion, which he has called a pub­lic sub­sidy be­cause in­ter­est on the bonds will be tax-ex­empt.

“FDFC’s lat­est ac­tion demon­strates AAF’s in­sa­tiable need and re­liance upon gov­ern­ment sub­si­dies to fund the West Palm to Mi­ami por­tion of its rail project,” Han­lon said in re­sponse to the FDFC’s ac­tion on Fri­day.

AAF of­fi­cials have said re­peat­edly that they in­tend to com­plete the en­tire project.

The com­pany has con­tin­ued to make “sub­stan­tial progress,” with an es­ti­mated in­vest­ment of $1.8 bil­lion, ac­cord­ing to Florida De­vel­op­ment Fi­nance Corp. doc­u­ments.

For the up­com­ing bond is­sue com­pared with the deal be­ing con­sid­ered in 2015, Lar­son’s memo said, “The col­lat­eral pack­age has been strength­ened, with re­duced lever­age ra­tios, and the vast ma­jor­ity of any project com­ple­tion risk elim­i­nated.”

An up­dated Oc­to­ber 2017 rid­er­ship and rev­enue study will be part of the ma­te­rial ap­pended to the pre­lim­i­nary lim­ited of­fer­ing mem­o­ran­dum. That study was not part of the backup ma­te­rial re­leased to The Bond Buyer.

A date for pric­ing the bond is­suance was not avail­able.

All Aboard Florida’s bond coun­sel is Green­berg Trau­rig PA. Un­der­writ­ers’ coun­sel is Mayor Brown LLP. No fi­nan­cial ad­vi­sor was named in the FDFC doc­u­ments.

The bonds are ex­pected to be sold only to qual­i­fied in­sti­tu­tional in­vestors per Rule 144A of the Se­cu­ri­ties Act of 1933, although Lar­son said it is pos­si­ble that un­der­writ­ers may sug­gest of­fer­ing the bonds to ac­cred­ited in­vestors.

The 2017 bonds are ex­pected to be struc­tured in a multi-mo­dal ar­range­ment with ini­tial bonds set in an in­ter­est-only term mode for seven to 10 years. The fi­nal struc­ture will be de­ter­mined af­ter an in­sti­tu­tional in­vestor road­show, based on in­vestor in­put.

At the end of the ini­tial term pe­riod, the bonds can be re­mar­keted to in­vestors af­ter a manda­tory put for an­other term mode pe­riod or a longer fixed-rate mode, with fi­nal ma­tu­rity not to ex­ceed 30 years from the ini­tial date of clos­ing, ac­cord­ing to Lar­son’s memo.

“The com­pany does not ex­pect to ar­range any liq­uid­ity fa­cil­ity for re­mar­ket­ing pur­poses,” he said.

The 2017 bonds are ex­pected to be sub­ject to an ex­tra­or­di­nary op­tional re­demp­tion at par, plus a yet-to-be de­ter­mined pre­mium if AAF ar­ranges fi­nanc­ing to re­fund the debt and fi­nance Phase 2.

Re­quests are be­ing sought from Fitch Rat­ings, Moody’s In­vestors Ser­vice and S&P Global Rat­ings, but “rat­ings are not ex­pected to be avail­able in time for the De­cem­ber pric­ing and clos­ing,” Lar­son said.

AAF plans to run 32 pas­sen­ger trains daily, at speeds up to 125 miles per hour in some ar­eas.

Phase 1 runs 67 miles with stops at sta­tions in Mi­ami, Fort Laud­erdale and West Palm Beach that are near­ing com­ple­tion. ◽

One of All Aboard Florida’s Bright­line-branded pas­sen­ger trains emerges from the work­shop in West Palm Beach, Fla.

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