Brightline West is in talks with bondholders about exchanging $2.5 billion of municipal debt for new securities before a November deadline to complete a financing plan for the project.
The price tag for building the railroad has swelled to $21.5 billion, a 35% increase compared with prior estimates, due to rising labor and material costs.
Bond prices have declined to about 75 cents on the dollar from about 87 cents since the higher cost estimate and federal loan application were reported, driven by the upcoming deadline to arrange alternative capital structures.
The Fortress Investment Group-backed company building a high-speed passenger railroad between Southern California and Las Vegas is in talks with bondholders about exchanging $2.5 billion of municipal debt for new securities before a November deadline to complete a financing plan for the project, according to people familiar with the matter.
A group of bondholders has hired law firm HSF Kramer to represent them in discussions with Brightline West, said the people who asked not to be identified discussing private negotiations. HSF organized a preliminary call with all bondholders Tuesday, they said. All bondholders would have the opportunity to participate in the exchange, whose terms haven’t been set, the people said.
The price tag for building the 218-mile (351 kilometer) railroad has swelled to $21.5 billion, a 35% increase compared with prior estimates. The higher cost has led the company to seek a $6 billion loan from the Trump administration. The federal loan will take the place of a bank facility that Brightline had been negotiating with banks.
Brightline plans to raise equity to cover most of the $5.5 billion increase in construction costs, Chief Executive Officer Mike Reininger said last month. It initially targeted an equity raise of $1 billion. Reininger said construction costs were increasing due to rising labor and material costs, in part caused by high demand due to the proliferation of data centers, power plants and transportation projects.
Under terms of Brightline’s $2.5 billion bond issued in March, the company had 270 days to complete a financing plan or buy the debt back at a premium. The railroad also needed to enter into enter into definitive agreements on all primary construction contracts, according to Barclays Plc analysts.
Brightline West has finalized four of nine separate construction contracts, Reininger said last month. Barclays analysts estimated the federal government could take more than six months to approve a loan.
Bond Prices Drop
Prices on Brightline West bonds issued by the California Infrastructure and Economic Development Bank have declined to about 75 cents on the dollar from about 87 cents since the higher cost estimate and federal loan application were reported.
“The recent trading activity has really been driven to the upcoming deadline to arrange alternative capital structures,” said Dora Lee, director of research for Belle Haven Investments. “I think management and bond holders are aligned in the desire to address that call feature when it comes up.” Belle Haven owns Brightline West bonds.
BlackRock Inc. and First Eagle Investments are the biggest holders of Brightline West bonds, according to data compiled by Bloomberg.
Alex Levin, Brightline’s head of investor relations, as well as spokespeople for HSF Kramer, BlackRock and First Eagle didn’t respond to requests for comment.
HSF Kramer recently represented a group of majority bondholders, led by Nuveen LLC and First Eagle in rolling over bonds related to Brightline’s struggling Florida railroad, buying the company a few more months to boost lagging ridership and revenue.
HSF negotiated a stronger security package for holders of the debt, which is backed by future payments from three South Florida counties for rights to use Brightline’s corridor for a new commuter rail.
