Brightline West made a decision to tap authorizations enabling it to sell $4.2 billion of private activity bonds to support its DesertExpress passenger train line that will connect Las Vegas to Victorville, California.
Brightline, which recently terminated a branding agreement with Virgin Trains USA, is owned by AAF Holdings LLC.
The first $1 billion issued through a U.S. Department of Transportation authorization was priced in two tranches Sept. 25 through California and Nevada conduits. Morgan Stanley was awarded the $1 billion sale.
The public debt, being sold through California’s IBank and Nevada DBI to qualified institutional buyers, represents the largest sale of unrated debt in the municipal market.
This kind of debt is typically marketed to corporate junk-bond buyers and overseas investors. The offering documents include guidance for investors in Australia, Korea, Japan, Europe, the United Kingdom, Hong Kong, Singapore, and Taiwan.
The bonds are being sold in denominations of $100,000 and integral multiples of $5,000 to qualified institutional buyers.
The bonds are also being marketed as green bonds as Brightline secured a green bond designation from Sustainalytics. The entire Brightline West system will be zero emissions powered by electric trains, according to the offering documents. The train stations will be LEED-certified for energy and water efficiencies, recycled materials will be used in construction and the train stations will have electric car charging stations.
Meanwhile, the San Francisco Public Utilities Commission, which plans to price a $665 million taxable water revenue green bond refunding Oct. 7 is listing their deal on the London Stock Exchange, with the goal of attracting interest from European buyers, who want to invest in green bonds. Goldman Sachs and BofA Securities are lead managers on that deal, which has AA-minus and Aa2 ratings from S&P Global and Moody’s.
“Larger issuers, who are proactively building distribution channels to new investors like this, are going to see real benefits,” said Colin Macnaught, chief executive officer and co-founder of Bondlink. “It takes time to find new buyers, it takes effort. This is an issuer [San Francisco PUC] going above and beyond to find more demand.”
The $850 million Series 2020A revenue bonds sold through the California Infrastructure and Economic Development Bank and $150 million of revenue bonds sold through the Nevada Department of Business and Industry received Aaa/VMIG-1 rating from Moody’s Investors Service. The legal structure provides for a closed system in which bond proceeds in the escrow reserve redemption account will be sufficient for full and timely debt service payments through the mandatory tender date, Moody’s wrote.
The bonds will be backed by escrowed Treasuries with a mandatory tender date of July 1, 2021, according to the pricing guide.
Morgan Stanley is lead underwriter on $3.2 billion of unrated tax-exempt private activity bonds, also being sold through the California and Nevada conduits, that could price as soon as next week.
Katten Muchin Roseman LLP is purchasers’ counsel and Orrick is bond counsel.
In its third quarter high-yield and bank loan outlook, Guggenheim wrote August 19 that the efficacy of Federal Reserve intervention in the credit markets, and its credit facilities should provide a tailwind for high-yield corporate bonds and bank loans in to the third quarter and beyond despite a deterioration in credit fundamentals.
“We believe there is still scope for improvement in the level of credit spreads, and our work continues to focus on opportunistically capturing value as the Fed’s programs support credit markets,” Guggenheim analysts wrote.
Though COVID-19 has resulted in the closure of retail businesses in Los Angeles and Nevada, transportation-related construction projects are moving ahead.
Officials at Los Angeles International Airport and San Francisco International Airport have told the Bond Buyer for previous articles that in some instances, projects are getting done more quickly, because of the drop off in passenger traffic.
Brightline is betting on the future with its Brightline West project connecting southern California to Los Angeles.
“It’s a great infrastructure project in a time when the country needs jobs, and the infrastructure it creates can have an impact for generations to come,” said Ben Porritt, a Brightline spokesman. “Vegas has proved to be an incredibly resilient market in the past.”
The $8.9 billion Brightline West project is expected to be funded with $6.5 billion of debt and $2.5 billion in equity, according to an online roadshow. In addition to the $4.2 billion debt covered in recent plans, it would need to issue an $2.3 billion of tax-exempt and taxable debt to meet those needs.
The $6.4 billion cost for the 260-mile L.A. to Las Vegas train is billions more than the $4.2 billion spent on the 235-mile Miami to Orlando train. It would connect from Victorville, California in the high desert by agreements to use existing Metrolink tracks to connect to Union Station in Los Angeles.
The company plans to break ground in fourth quarter on the project that aims to have 200-mile-an-hour trains operating on a track constructed on the I-15 median between Nevada and southern California. It expects to open for service in early 2024.
Brightline expects to capture 22% of the 50.5 million travel market, including car and air, between Los Angeles and Las Vegas annually for 11.3 million passengers a year. It claims in the online road show that it only needs 6.6 million passengers annually, or a 13% share, to meet debt service.
Brightline completed its Florida system between Miami and West Palm Beach in 2018, and claims in offering documents the system carried over 1 million passengers in 2019.
The company, which began running passenger trains between Miami and West Palm Beach in 2018, stopped service in South Florida on March 25, because of the COVID-19 pandemic’s unprecedented impact on travel activity,” according to a market notice.
Indian County in Florida filed a lawsuit challenging a federal court’s December 2019 ruling that the Florida project qualified qualified for PAB financing. The U.S. Department of Transportation and Brightline filed documents Aug. 21 defending the allocation.