Brightline Cuts Deals In Lawsuit
a name change to Virgin Trains in the offing, and an IPO, the private owners of the All Aboard Florida/Brightline passenger train project negotiated settlements with two of four plaintiffs challenging its private activity bond allocation in federal court.
Martin County, Florida, and the nonprofit group Citizens Against Rail Expansion in Florida approved agreements with the train’s private owners and pulled out of the litigation on the eve of a pivotal hearing Tuesday.
The deal helps AAF Holdings LLC, operating as Brightline LLC, clear a legal obstacle toward meeting a Dec. 31 deadline imposed by the U.S. Department of Transportation to issue $1.15 billion of private activity bonds to finance portions of the second phase of its project from West Palm Beach to Orlando.
Brightline reportedly plans to issue the bonds in December, although the company would not comment for The Bond Buyer Tuesday about its financing schedule.
The federal lawsuit and pending bond issue remain on the radar as Brightline prepares to rebrand itself as Virgin Trains USA in an affiliation with British billionaire Richard Branson’s Virgin Group.
Brightline announced the stra With
tegic partnership and trademark licensing agreement Nov. 16, the same day it closed the deal, with Virgin agreeing to make an undisclosed minority investment in the train project.
Fortress Investment Group LLC will retain majority ownership of Brightline, and its current management team will remain in place. The company will transition its consumer facing brand to Virgin Trains USA during 2019.
Virgin Trains also filed a form S-1 registration statement Nov. 16 with the Securities and Exchange Commission announcing its plan for an initial public offering of common stock. The date of the IPO and amount of stock to be issued have not yet been disclosed.
Martin County and CARE filed a joint stipulation of dismissal with prejudice Monday in the federal lawsuit, saying the settlement of their case against Brightline provided significant concessions, including safety and maritime benefits and cost savings both had pursued during litigation.
Brightline also agreed to place a train station in Martin or St. Lucie counties – both in the Treasure Coast - within five years and pay half of the cost to build it, with local government paying the other half.
“Staff has worked diligently to negotiate a favorable outcome for Martin County residents,” said County Attorney Sarah Woods. “With this settlement, we’ve achieved our ultimate goal of increasing safety measures along the rail corridor while limiting future financial obligations.”
Indian River County and the Indian River County Emergency Services District are still pursuing the federal suit. The County Commission voted 4-1 on Nov. 20 to reject Brightline’s proposed settlement.
“Over the past year we’ve been focused on developing a more constructive and cooperative relationship with the Treasure Coast in hopes of bringing all parties together,” Brightline said in a statement. “We appreciate the work of Martin County and CARE to bring this to a resolution and while disappointed in this vote [by Indian River County], our project will continue moving forward.”
U.S. District Court Judge Christopher Cooper heard oral arguments Tuesday on motions for summary judgment filed by Indian River County, AAF Holdings, and the USDOT. Cooper could take months to issue a ruling.
Martin County, Indian River County, CARE and the Indian River County Emergency Services District filed suit against the USDOT on Feb. 13 in the U.S. District Court for the District of Columbia.
The joint suit challenged the federal transportation agency’s allocation of PABs for Brightline’s second phase, and contended that safety and environmental laws were not properly followed.
Brightline’s lawsuit settlement offer to Indian River County would have provided the installation of safety mechanisms above those required by the federal government, such as more than 30 miles of fencing on either side of the tracks. The offer would have saved the county between $2.5 million and $8.2 million, although the county would eventually incur some additional maintenance costs.
Indian River County Commissioners cited a number of problems with the offer, including provisions that would have prevented the county from opposing, legally challenging and lobbying — or encouraging others to do the same — on any federal, state or local approval, permit, authorization, regulation or financing plan affecting the Brightline project during construction of the West Palm Beach-to-Orlando segment, and for the first five years after revenue operations begin. Work on the route has not started.
Indian River Commission Chairman Bob Solari said the restrictive provisions in the settlement agreement “totally takes us out of the fight, which is untenable,” because they would prevent the county from taking action if unforeseen problems with the highspeed train arose while the restrictions were in force.
The passenger trains will travel through Indian River County at speeds up to 110 mph on an existing railway shared with freight trains that currently operate at speeds up to 60 mph. There are about 30 at-grade railroad crossings in the county.
“This is an existential issue for Indian River County,” Solari said, referring to years of efforts by the county trying to block the train. “To me this is a moral obligation and we had it since we took office to support the health, safety and welfare of the people of Indian River County.”
During a public hearing Nov. 20, a number of speakers encouraged Indian River County Commissioners to pursue the litigation rather than settle.
“This lawsuit has tremendous merit,” said Indian River Shores retiree Peter Seed, who prefaced his remarks by saying he was a public finance attorney for over 30 years. “I think you have an excellent chance of prevailing ultimately.”
Seed, who worked at the law firm of Briggs and Morgan Professional Association at its St. Paul, Minnesota, office, said he retired at the end of 1998 and moved to Indian River Shores.
He declined to be interviewed by The Bond Buyer about the specific reasons he believes the litigation may be successful because he said the lawsuit is at a “highly sensitive stage” with motions for summary judgment under consideration.
After rejecting the settlement offer, county commissioners voted to allocate another $1 million “to the efforts to address and prevent this train from going through our county,” according to the funding motion by Commissioner Joseph E. Flescher. The county has spent about $3 million so far.
Martin County and CARE signed settlement agreements with the same restrictive provisions allowing the train project to proceed without their interference during construction and five years after start-up.
Brightline, and now through its partnership with Virgin Trains, shows no sign of slowing down developing the nation’s first privately owned intercity passenger train system in more than a century.
The prospectus filed by Virgin Trains outlines plans for future expansion and train stations, including a possible stop at Walt Disney World, though that is not far from the planned terminus at Orlando International Airport. The map of the project’s route doesn’t show a station in the Treasure Coast.
The prospectus covers a series of general legal events that could impact the project, but doesn’t mention the pending federal lawsuit.
In December 2017, the Florida Development Finance Corp. issued $600 million of PABs on behalf of AAF to finance the first phase of its service from Miami to West Palm Beach, which has been in full operation since May 19. The FDFC has also agreed to be the conduit issuer for the upcoming sale of $1.15 billion for phase 2.
AAF has also applied for a low interest Railroad Rehabilitation and Improvement Financing loan through the Federal Railroad Administration to finance phase 2, but has declined to say whether it will use the loan program or PABs, or both.
Earlier this year, the company submitted the only proposal to lease rights of way owned by FDOT and the Central Florida Expressway Authority to expand passenger rail service from Orlando to Tampa. FDOT said it expected to make a decision on the proposal Wednesday.
The company also plans to offer passenger rail service between Las Vegas, Nevada, and Southern California after buying a company that was developing those plans. ◽
Billionaire Richard Branson’s Virgin Group has taken a minority stake in All Aboard Florida’s Brightline passenger train project.