Brightline files Chapter 11 with $258 million of new financing; muni principal is safe, some interest may wait

Brightline, the Fortress-backed passenger railroad between Miami and Orlando, filed for Chapter 11 late Thursday in the U.S. Bankruptcy Court for the District of New Jersey, The Bond Buyer reported. Brightline Holdings LLC and other parent entities filed. The lead debtor is an entity called FIHPNP LLC, joined by 17 affiliates, and the petition lists assets and liabilities of $1 billion to $10 billion each. The operating company, Brightline Trains Florida LLC, is outside the case, so service continues. Bloomberg, the Financial Times and the WSJ also reported the filing.

We covered the plan on Wednesday, before the filing. Here is what the actual filing and restructuring support agreement added.

What is new since the plan was reported

• $258 million of financing during the case for the operating company, from bond insurer Assured Guaranty and other bondholders. Assured is providing up to $178 million of it. It ranks alongside existing senior debt and is repaid from the exit financing.
• $490 million of long-term new capital, as previously reported: $140 million of new senior debt, half of it from Assured, and $350 million of new junior debt from other bondholders, according to The Bond Buyer.
• An interest deferral on senior bonds. Some senior bondholders have agreed to a limited deferral of scheduled interest in exchange for a fee from the operating company, which will offer the same option to all senior holders, Assured said.
• Virgin Group, Brightline's former branding partner, is the largest unsecured creditor at $8.6 million.

The thing the headline gets wrong

"Largest muni bankruptcy in years" sounds like a loss for muni investors. On principal, it is not. Every muni layer stays outstanding at full face value, according to Brightline's announcement quoted by The Bond Buyer:

That is about $4.4 billion of muni principal preserved. The loss lands on the $1.19 billion of corporate notes, about 22% of the roughly $5.5 billion of total debt.

But principal is not the whole return. A holder of an uninsured senior bond who accepts the deferral waits longer for coupon payments, for a fee. For insured bonds, Assured says it will guarantee deferred interest when it comes due, and will keep paying on the original schedule for holders who do not opt in. Every bond except the insured senior paper trades at distressed prices, according to The Bond Buyer, and none had traded as of Friday morning. A fund marked to market can still lose value on bonds whose principal was never cut.

Who it actually hits

High-yield muni funds are the natural holders. The ad hoc group includes Nuveen, First Eagle, Invesco, Nomura and BlackRock. For an investor in one of those funds, the first test is whether the fund took the deferral and what the fee was, which will show up in fund disclosures, not in the bankruptcy headline.

For riders and Florida businesses near the stations, the answer is simpler: the trains run. Brightline reported June ridership of 292,339, up 15% on the year, with an average of 9,745 riders a day, WPTV reported. The problem was never the train filling up. It was $5.5 billion of debt against that ridership.

The plan still needs approval from the bankruptcy court.

Sources: The Bond Buyer (filing), The Bond Buyer (restructuring plan), Bloomberg, WPTV. The share of total debt is a Chronicle calculation. This is market information, not investment advice.