Anatomy of a deal: Brightline's Innovative Finance winner

Most deals take some time to put together, but this year's Brightline Florida passenger train financing has been in the works since the borrower first hit the municipal bond market in 2017.

"Over the last seven years we've been building toward this transaction and telling the Brightline story," said Zachary Solomon, co-head of the public finance group at Morgan Stanley (MS), which has run the books on all of Brightline's muni market deals. "All the financings we've done were able to be called and refinanced in January 2024, which we knew is when the system would be in full operation [from Miami to Orlando]."

The winner in the Innovative Financing category of The Bond Buyer's Deal of the Year awards, Brightline's $3.2 billion financing marks the largest private-activity bond issuance and first investment-grade bond deal for American intercity rail.

Including the taxable debt, the financing restructured $4.5 billion of debt across three liens. It marked one of the most complex deals to hit the municipal bond market this year, with a mix of taxable and tax-exempt debt featuring subordinate and senior liens backed by newly separated holding, operating and parent company entities.

Long a prominent name in the high-yield municipal bond space, where Nuveen for years held the bulk of the debt, Brightline's restructuring lifted it for the first time into the investment-grade world and allowed it to broaden its investor base. It was with those investors in mind that the team crafted the various new credits and liens, Solomon said.

"We structured that capital structure on the basis of those seven years of knowing which investors cared, and which investors cared about which kind of structure," he said.

The team needed to sell or place all the tax-exempt and taxable paper together in order to take out all the debt that has financed the $6 billion project. Nailing down the timing across different markets represented one of the biggest challenges.

"Our CFO Jeff [Swiatek] called it the Thanksgiving dinner of transactions because there were so many different pieces that all needed to close on the same day," said Alexandra Levin, Brightline's senior vice president of capital formation and investor relations. "They all needed to be baked and ready at the same time, but all needed different levels of baking, and they were all so different."

Levin, who came to Brightline from Citi where she worked in municipal finance, added that she's "never seen anything like a five- or six-parter" on a deal. "Each one of which is massive," she added. "Any one of these deals would have been spectacular in its own right and to pull them together, for the whole team it was a huge herculean effort."

For weeks ahead of the pricing, the team worked past midnight, with a 50-plus group email receiving immediate responses despite the late hour, Levin said.

Morgan Stanley (MS) was senior manager with five underwriters rounding out the syndicate. PFM Financial Advisors LLC was financial advisor. Greenberg Traurig PA was bond counsel. The Florida Development Finance Corporation was conduit issuer.

In operation since 2018, Brightline Trains Florida LLC owns and operates a 235-mile system that marks the country's first privately financed, intercity passenger train in more than half a century.

The train also marks the first amid a group of express- or high-speed trains working to get off the ground in places like California and Texas. Brightline West, set to run between Las Vegas and southern California, broke ground in April and if the project remains on track would become the first true high-speed electric system in the country.

Brightline Florida and West are backed by Fortress Investment Group LLC.

Brightline Florida for years borrowed in chunks to finance construction building from the initial 72-mile route between Miami to West Palm Beach it opened in 2017, "always with an eye toward eventually refinancing all the construction pieces into a more permanent capital stack once we were operating," Levin said. Six months after the company successfully opened its full Miami to Orlando route, it was ready to refinance its full $5 billion capital stack.

The final structure featured $2.2 billion of investment-grade rated tax-exempt debt, 51% of which carries a wrap from Assured Guaranty (AGO), giving the insurer control in case of trouble, and $1.325 billion of taxable senior secured notes. Another $925 million of unrated tax-exempt bonds, which sported a 12% yield, will finance a proposed extension to Tampa.

The company's willingness to be open and transparent helped investors get comfortable with the debt, Levin said. "We have monthly updates that we put out, which is not necessary for every credit but we have an active, growing business so we try to be very transparent, listen to our investor and treat them well," she said. "That kind of dialogue over many years has been good for us."

After months of marketing, all the credits enjoyed strong demand when the deal finally came to market, the team said. The $2.2 billion of debt with the Assured wrap received almost $6 billion in orders from 77 institutional accounts and "was dominated by high-grade bond funds and investment advisors that did not have significant holdings of previously issued Brightline debt," as well as $41 million of retail orders, according to the team.

The $1.325 billion of high-yield taxable notes attracted $1.7 billion across 85 accounts from qualified institutional buyers "who previously had little to no knowledge of Brightline, introducing the company to an entirely new buyer base," the team said. The $925 million of high-yield tax-exempt bonds received $1.3 billion in orders across 25 accounts, "including several taxable crossover buyers who normally do not participate in the muni market."

Solomon said the Brightline deal offers a model for others looking to finance complex infrastructure in the U.S.

"When we started in 2017, there were a lot of people who didn't believe it was possible to finance it, to build it, to operate it," he said. "But if America wants 21^st Century infrastructure and to build things that really impact the U.S. at the scale that Brightline does, this is an incredible case study of persistence, preparation and creativity on how to deliver infrastructure at an enormous scale."