Timing Matters for All Aboard Florida Financing
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.