Can Brightline run its finances on time? The private passenger train service faces a deadline to refinance almost $1 billion of its bonds while financial and new legal pressures mount.
The company faces a balloon payment on other bonds it has refinanced several times, and hopes to do again. The $985 million of rollover debt will come with an even higher interest rate, making it more expensive for Brightline. Brightline has offered lenders a 10% interest rate on these bonds, as first reported by Bloomberg. Coupled with other incentives, the bonds may come with 15% yields for investors, according to financial news site The Bond Buyer.
By comparison, the benchmark 10-year bond from the U.S. government pays investors about 4.3%.
The bonds Brightline is refinancing are exempt from taxes.
Brightline’s higher interest rate reflects a growing worry about the service’s finances and ability to pay back investors. Brightline revenue has increased, especially since it started running passengers between Orlando and South Florida in 2023, but sales have not jumped as fast as expected while costs have jumped more than anticipated.
This month, credit ratings agency S&P Global cut its rating on some Brightline bond for the second time since May.
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“ What we're seeing is that particularly the long distance fares are really falling rather than the expectation of rising," said Trevor D'Olier-Lees, managing director at S&P Global. “When we consider the revenues, they're really starting to fall short of our previous base case forecast.”
The firm now rates Brightline bonds BB-, which is further into junk bond territory. The ranking reflects further deterioration in the rating agency’s opinion of Brightline’s finances.
Ridership and financial results
The ratings cut comes after Brightline filed its June ridership and financial results. Passenger revenue continued growing for the service between Orlando and South Florida, but so-called short haul trips — those between stations in South Florida — continued falling. While more people were riding the trains, they were paying lower average fares compared to a year ago.
The company did not respond to am email requesting comment.
“It's getting those fares up. The fares are much weaker than expected,” said S&P Global’s D'Olier-Lees.
The average long distance fare in June was $69.34, down three percent from last June. South Florida fares fell more — down 16% — to $23.51. Brightline has been trying to raise fares between stations in South Florida and focus on selling seats to and from Orlando instead.
That effort has generated criticism from some regional passengers that the service is less economical than it was when it first started. The company has maintained that it is not designed as a commuter service. Instead, it is focused on providing longer trips, which are more profitable.
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“ Ticket pricing is the chief challenge to achieving a successful ramp-up,” wrote S&P Global in its latest bond analysis. “We expected that increases in train capacity in April and June would spur short-distance ridership increases, which had been intentionally suppressed to make room for more expensive long-haul trips and allow management to better optimize train occupancy. However, the increased capacity hasn’t resulted in a meaningful increase in short-distance ridership.”
Brightline began running six-car trains in June. It expects to add one more car to its trains later this year.
The company did not disclose operating costs in its regular June filing.
Last year, operating costs for Brightline were 10% higher than it projected. It blamed higher employee expenses on “labor inflation.” It also spent more on maintaining its tracks and a category it listed as “other,” which includes train stations and general corporate administrative spending.
In July, Brightline skipped paying interest on some of the money it borrowed to build and operate its train service. The missing payments did not mean Brightline defaulted on its IOUs, but it was another sign of money troubles.
Brightline said in June it was essentially done negotiating with Miami-Dade County over using the same tracks to run commuter trains. But the owner of the tracks — Florida East Coast Railway — has sued Brightline over those plans.
