Brightline insurance wrap puts Assured in drivers seat
As Florida’s Brightline passenger train floated its first investment-grade and insured bonds in a high-profile transaction last week, a key part of the deal for insurer Assured Guaranty was the control it would have if the issuer runs into debt payment trouble.
Assured wraps $1.13 billion, or 51%, of the $2.219 billion of senior bonds issued by the passenger rail line as part of a larger debt restructuring. That gives Assured, whose policy is irrevocable, a controlling vote for remedies if bondholders need to direct the bond trustee, Deutsche Bank National Trust Company, to take action.
“A critical aspect of insuring a majority of the bonds is that if something unexpected were to happen, Assured Guaranty would be the party deciding what actions to take on behalf of the senior bondholders,” said Lorne Potash, managing director and head of infrastructure finance and project finance, Americas at Assured. “That’s why being able to exercise those control rights are important to us.”
Brightline Florida’s express passenger train refinanced most of its debt in a recent transaction.
Brightline Florida
Potash said the insurance also provided additional comfort to investors, saying it was “important to investors who were reassured to hear that there would be a large sophisticated party with a significant economic interest in the success of the project that gave the bonds their seal of approval.”
Brightline Trains Florida LLC, which is backed by Fortress Investment Group, owns and operates a $6 billion, 235-mile train system from Miami to Orlando that’s the first private passenger intercity express system built in a century. The extension to Orlando International Airport opened last fall, and an extension to Tampa is being eyed.
The recent deal restructured nearly all of Brightline’s capital stack. The $2.2 billion senior bonds marked the credit’s first foray into the investment-grade market. The senior debt carried low investment-grade ratings of BBB-minus from S&P Global Ratings and Fitch Ratings, and BBB from Kroll Bond Ratings Agency, with the insured paper rated AA by S&P and AA-plus by Kroll.
Brightline also sold $925 million of tax-exempt unrated bonds, which carried a 12% yield, as well as $1.25 billion of taxable high-yield bonds. Proceeds from the tax-exempt debt will finance the proposed Tampa extension.
The tax-exempt paper has traded up since last week’s issuance.
A chunk of the 12% tax-exempt unrated bonds due in 2032 sold for 103.5 in secondary trading Thursday, up from 98 on the primary market.
A tranche of the BBB-minus insured 2044 bonds with a 5% coupon sold for 106 Thursday — up from 103.7 during the primary sale.
Uninsured BBB-minus paper due in 2053 with a 5.5% coupon sold Thursday for 105.5, up from 102.2 at pricing.
Investment-grade bonds due in 2053 that feature insurance sold Friday for 104.9 with a 4.58% yield, up slightly from original pricing at 104 with a 4.65% yield. On Thursday, the same tranche sold for 106.7 with a 4.62% yield.
Morgan Stanley & Co. LLC. ran the books.
