Brightline promised its Tampa bondholders full principal. Their bonds trade, and are valued, far below face

The Tampa bonds sit outside the bankruptcy, and their price fell anyway

Objections to the financing in Brightline’s Chapter 11 case are due by 4 p.m. on Thursday, Oct. 22, and the final hearing on it is set for 10 a.m. Oct. 29, the court’s interim order says. Brightline says about $1.2 billion of junior bonds tied to its planned Tampa extension will stay outstanding with no cut in principal, yet First Eagle, one of the funds behind the deal, valued the ones its high-yield fund held at 28 cents on the dollar on July 31, and trades on Oct. 5 printed near 5 cents (interim financing order; The Bond Buyer; SEC EDGAR).

The junior bonds are two Florida Development Finance Corporation issues, $925 million sold in May 2024 and about $286 million in December 2024, lent to AAF Operations Holdings LLC. That borrower is not in bankruptcy. Its debt is guaranteed by Brightline Tampa, also outside the case, and secured by its subsidiaries’ equity and by the Tampa assets: the Orlando-to-Tampa right-of-way lease award, a $15.875 million federal rail grant and access rights at Orlando International Airport (first-day declaration).

The borrower deferred the interest due July 15, 2025 and Jan. 15, 2026, as the bond terms allow, and did not make the cash payment due July 15, 2026; the grace period now runs as late as Sept. 24, 2027 (first-day declaration; Mass Transit).

Your stake: if you own a high-yield municipal bond fund, Brightline paper sits in some of the largest: First Eagle’s High Yield Municipal Fund held about $790 million face of Brightline bonds valued at about $425 million on July 31, about 5.7% of its net assets (SEC EDGAR; our arithmetic).

The holders read the same bonds two ways

Brightline said its senior bonds, the junior Tampa-linked debt and its commuter bonds will “remain outstanding, with no reduction in aggregate principal amounts, through the restructuring,” The Bond Buyer reported, and Mass Transit reported the same, according to Brightline. The deal behind the case is a restructuring support agreement dated Sept. 24 with bond insurer Assured Guaranty and a group of mutual funds (The Bond Buyer; Mass Transit; first-day declaration).

The market priced it differently. The Bond Buyer reported that more than $15.4 million of the junior bonds traded at 5.37 cents on Oct. 5 and about $5 million up to 8 cents the next day, against about 36.75 in January. “It does not seem that market expectations think at least the junior lien will be made whole,” said Miguel Laranjeiro of Aberdeen Investments; at 5 cents, said Jeff Timlin of Sage Advisory Services, “people finally gave up” (The Bond Buyer).

First Eagle’s holdings report, filed with the SEC Sept. 28, valued its high-yield fund’s $290.1 million face of the junior bonds at $81.2 million on July 31, 28 cents, and its Short Duration High Yield Municipal Fund held $44.25 million face of them valued at $12.39 million. Its John Miller said “the full par value of these bonds is being preserved,” that they are “not subject to the Chapter 11 proceedings,” and that the $850 million release price for the Tampa collateral is “multiples above recent trading levels,” which he said “imply a value of approximately $50 million” (SEC EDGAR; The Bond Buyer).

Nuveen sold, and the senior paper fell too

Nuveen “unloaded all of its uninsured senior position, which was bought by hedge funds, according to Bloomberg,” The Bond Buyer reported; Hedgeweek, citing Bloomberg’s unnamed sources, said Diameter Capital Partners, Redwood Capital and FourSixThree Capital bought about $190 million of Brightline bonds from Nuveen at about 45 cents. A Nuveen spokesperson said the firm had “reduced its exposure to Brightline by more than 75% since April 2023.” The Bond Buyer said $139 million of uninsured senior bonds fell to 45.5 on Sept. 28, Assured-wrapped senior bonds traded at 95.6 on Oct. 2, and Fitch cut the senior bonds to C on Oct. 1. Nuveen’s Municipal High Income Opportunity Fund still listed Brightline senior and commuter bonds on July 31, before the filing (The Bond Buyer; Hedgeweek; SEC EDGAR).

The trains still run while the lenders fight

The operating company, Brightline Trains Florida, is not a debtor, and its trailing 12-month ridership was 3.6 million through July. Entities managed by an affiliate of Fortress Investment Group own most of the debtors’ equity. CK Opportunities Fund I, the majority lender on a $484 million holding-company term loan, objected Sept. 26 to the financing, saying “CK Fund does not consent to being primed” and pointing to a December 2022 Brightline West transaction involving an entity controlled by Fortress principal Wes Edens; Brightline disputes that characterization in pending New York litigation (first-day declaration; BankruptcyData).

What comes next is Oct. 22 and Oct. 29

Objections are due Oct. 22 and the final financing hearing is Oct. 29. Assured has said that for insured bonds whose holders elect to defer, it “will guarantee the timely payment of the deferred interest when due.” We did not check the docket for objections filed after Oct. 1 or for a moved hearing date (interim financing order; The Bond Buyer).