Virgin Trains USA gets approval for third PAB issue

Virgin Trains USA (formerly known as Brightline) has been granted approval by the Florida Development Finance Corp (FDFC) to raise a further $950 million in private activity bonds (PABs) to fund the second phase of its inter-city rail project.

Phase 1 of the project – Miami-Fort Lauderdale-West Palm Beach – opened in 2018. Phase 2 will be a 275km line between West Palm Beach and Orlando. The project includes upgrading the existing Florida East Coast Railway from West Palm Beach to Cocoa and construction of a 200 km/h alignment from there to the newly-built station at Orlando Airport. The $2 billion second phase is expected to be completed by 2021-22.

The latest PAB approval (the project’s third allocation) follows a $1.75 billion PAB issue, also with FDFC as the conduit issuer, which is scheduled to close on 18 April. The issue comprises $250 million priced with a 6.25% coupon and a put in 2024; $500 million priced with a 6.375% coupon and a put in 2026; and $1 billion priced with a 6.5% coupon and a put in 2029. The deal took around $4 billion in orders, enabling sole underwriter Morgan Stanley to upsize from an initial $1.5 billion and lower yields by 17bp.

The project sold its first PABs allocation in 2017 – $600 million, priced at 5.625%, which refinanced existing debt to build Phase 1. Investors in the first deal were told that the $600 million would be taken out in a subsequent issue when work was ready to commence on Phase 2. Consequently, the Phase 1 bonds will be redeemed on April 18 at a price that includes a 5% early-call premium, plus accrued and unpaid interest.

Despite its name, Virgin Trains USA is majority-owned by Florida East Coast Industries (FECI) – Virgin only has a small minority interest. FECI is in turn owned by Fortress Investment Group, which was sold to SoftBank Group in December 2017. FECI contributed $1.05 billion in equity to the project in 2018, and $1.08 billion in 2017.

Virgin Trains USA released its first audit on March 29 in a supplement to the preliminary limited offering memorandum for the $1.75 billion PAB issue. Total revenues were $9.9 million in 2018, while operational, corporate and administrative expenses were $112.7 million, producing a net loss of $117.4 million.