• Brightline (fka Virgin Rail, fka Brightline) IPO, Bonds, Success, Branding

  • This is a forum for all operations, both current and planned, of Brightline, formerly All Aboard Florida and Virgin Trains USA:
    Websites: Current Brightline
    Virgin USA
    Virgin UK
This is a forum for all operations, both current and planned, of Brightline, formerly All Aboard Florida and Virgin Trains USA:
Websites: Current Brightline
Virgin USA
Virgin UK

Moderator: CRail

  • 107 posts
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  by Gilbert B Norman
Ridgefielder wrote: Fri Jun 28, 2019 11:40 amBrightLine was a known brand to us, and known within Florida.

Virgin, and Sir Richard, are known to the general public. And also to the investing public. Sir Richard can appear on CNBC, Bloomberg TV, etc whenever he cares to, talk about whatever he wants, and be taken seriously. If you're a company looking for investors to fund capex, having him on board is valuable. Gets the project a second look that it might not otherwise get.
These are good points, Mr. Ridgefield, and not to be overlooked
Jeff Smith wrote: Sat Jun 29, 2019 4:25 pm Although not really railroad-related, it was the impetus for Brightline: https://www.bizjournals.com/southflorid ... s-usa.html
The 26-story tower, at 591 Evernia St., is next to the station for the passenger rail line connecting West Palm Beach to Fort Lauderdale and Miami.
I've noted that building adjacent to the station under construction on my three joyrides to date. I was unaware that FECI has an interest in such; but then they don't really advertise their association with a project.
  by mmi16
electricron wrote: Thu Jun 27, 2019 2:31 am
There is nothing preventing these local cities and towns building new overpasses over the existing railroad corridor, except lack of vision. Frankly, they should have done so decades ago if they were worried about first responder delays at the railroad crossings, because freight trains can take minutes to cross an intersection.
Yes there is. Money. Money they don't want to spend. Money that they want Virgin to spend on them.
  by electricron
mmi16 wrote: Thu Jul 04, 2019 4:41 pm Yes there is. Money. Money they don't want to spend. Money that they want Virgin to spend on them.
If Brightline/Virgin was not starting a new passenger train service, and if only FEC was running freight trains down the track, who would these cities wish to build their new overpasses and underpasses under the FEC tracks? Keep in mind, FEC only owns a 100 feet wide rail corridor, not the 600 to 1200 feet it would take to build a grade separated street over-under the railroad property.
  by Gilbert B Norman
This Wall Street Journal article appearing today, does not mention rail whatever but I think it shows Sir Richard's "MO" to, at the least, the paper's readers.

https://www.wsj.com/articles/bransons-s ... lewebshare

To me it reads "stir the interest pot, get some 'Opium' (OPM=Other People's Money) in the 'mix', and get out".

After all the hoopla wears off, can Brightline/Virgin expect him to be a long term stakeholder?
  by gokeefe
Agreed that he's definitely a marketing genius. On the other hand Virgin has a long term "track" record on rail operations.
  by Jeff Smith
Non-believer: SunshineStateNews.com
Everybody Get It Now? Finally the Miami-to-Orlando Train-Boondoggle Is Fully Exposed

For five years, every financial and business plan from All Aboard Florida (Virgin Trains) has centered on their higher speed rail service taking only 3.15 hours from Miami to Orlando to compete with cars and planes. That time frame allowed for only four stops: in Miami, Fort Lauderdale, Palm Beach and the Orlando airport, requiring speeds of 110 mph and 125 mph on Phase 2.

Now, it seems, Virgin Trains is prepared to throw that business model and the Tri Rail commuter service under the proverbial bus. With their passenger numbers trending to miss 2019 projections by over 50 percent, revenue falling monthly and losses piling up, it appears Virgin management is pivoting to an upscale commuter service and a larger real estate play.

In June, they announced more stops are being considered in Boca Raton, Aventura and PortMiami on the Phase One route from Miami to West Palm. The company announced it’s in talks with Hollywood, and Palm Beach Gardens recently raised its hand. Virgin Trains has “promised” Martin County the system will open one stop on the Treasure Coast, most likely in Fort Pierce or Stuart.
  by Arlington
Narrow-minded people think pivoting is bad.

A short extension to Port Miami would be very powerful (and would not increase trip times because it was an extension rather than an infill)

Is there any further news on the extension?

I found this detailed article from February which provides better detail on the situation then a subsequent article from May does.
https://www.miamitodaynews.com/2019/02/ ... portmiami/

To make it work economically they would have to be some combination of:
1) subsidies from the cruise operator
2) limited service that was provided only when the port was busy
3) depending on who actually owns the rails it might be that the port should pay for any rail and signal upgrades
4) brightline clearly wants real estate development to help pay for anything they do. I'm not sure how they would achieve this at Port Miami.
  by Gilbert B Norman
Good reading for the Bondholders who went all in on the strength of the A ratings the VT bonds received from the rating agencies:

https://www.wsj.com/articles/inflated-b ... lewebshare

Fair Use:
Inflated bond ratings were one cause of the financial crisis. A decade later, there is evidence they persist. In the hottest parts of the booming bond market, S&P and its competitors are giving increasingly optimistic ratings as they fight for market share.

All six main ratings firms have since 2012 changed some criteria for judging the riskiness of bonds in ways that were followed by jumps in market share, at least temporarily, a Wall Street Journal examination found. These firms compete with one another to rate the debt of borrowers, who pay for the ratings and have an incentive to pick rosier ones
I think the "play" to the private holders, in addition to the Federal Income Tax exemption (and in Florida, no State as well), is that the "Tallytrough will be open and ready to serve you".
  by andrewjw
These bonds aren't publicly traded, so the bondholders are all professional ("qualified", "accredited") investors who understand the ratings system - no "mom and pop" investors (they can still get exposure to these bonds through "high-yield bond" mutual funds which own these bonds among others). In 2008, yes, the professionals got it wrong because they didn't know the ratings agencies had gotten so relaxed, but now that the effect is known and studied it is priced in appropriately. A bond trader who went all in because they saw the "A" (really Aaa) rating without doing due diligence would be fired and sanctioned by FINRA. Here's a (not particularly brief, but publicly available) quote from this newsletter by industry-respected Bloomberg Opinion columnist Matt Levine directly commenting on the article you linked:
Here is a thing you know about credit ratings:

"Behind the ratings inflation is a long-acknowledged flaw Washington didn’t fix: Entities that issue bonds—state and local governments, hotel and mall financiers, companies—also pay for their ratings. Issuers have incentive to hire the most lenient rating firm, because interest payments are lower on higher-rated bonds."

You knew that, right? Everyone knows that; ever since 2008, when repackaged mortgage products with AAA ratings turned out to be toxic, it has been clear to anyone who has paid the slightest attention to financial markets that bond ratings are paid for by the issuers and that ratings firms have awkward incentives to over-rate bonds to win more business. And so after the 2008 crisis there were various congressional and regulatory proposals to reduce the importance of credit ratings, though not much actually happened with a lot of those. But, you know, those politicians and regulators, they get distracted easily, they never fix the real problems, no skin in the game, etc.

Here’s another thing about credit ratings, from the same front-page Wall Street Journal article:

"Investor reliance on credit ratings has gone from “high to higher,” says Swedish economist Bo Becker, who co-wrote a study finding that in the $4.4 trillion U.S. bond-mutual-fund industry, 94% of rules governing investments made direct or indirect references to ratings in 2017, versus 90% in 2010."

Huh. Don’t you have to incorporate that fact into your model of credit ratings? The basic story is:

1. Credit ratings have bad incentives and a salient recent history of bad performance.
2. Everyone who invests in bonds knows this and is reminded of it constantly.
3. Their reliance on issuer-paid ratings is high and growing.

Like, I don’t know, these people are not idiots? They know the history, they understand the incentives, and they all tie themselves to ratings anyway. If there was market demand for ratings with different incentives—ratings paid for by investors, for instance—then those would surely be popular by now. At this late date, the story can’t really be “ratings are bad and investors are deceived.” The investors are not deceived, and they’re still using a lot of issuer-paid ratings anyway.

So what is a better model? An obvious tidy one would be “actually the ratings are good”: The ratings firms have appropriate firewalls between the people who sell ratings and the people who give them, the ratings that result give a good picture of credit quality, etc. Certainly the ratings firms endorse this model, but you don’t have to, and of course there are anecdotal stories of ratings being bad.

An alternative model would be “ratings are bad but investors are not deceived,” that they don’t rely on the ratings firms to tell them what bonds to buy:

"'We don’t trust the ratings,' says Greg Michaud, director of real estate at Voya Investment Management, which holds $21 billion in commercial-real-estate debt. …

There are signs some investors are skeptical. Some bonds in markets where ratings criteria have been eased don’t trade at the high bond prices their ratings suggest they should."

Not only that, but investors distinguish between ratings firms that give high ratings and firms that are stricter. For instance there are more ratings firms than there used to be, and the new ones are more generous:

"The Journal’s analysis suggests a key regulatory remedy to improve rating quality—promoting competition—has backfired. The challengers tended to rate bonds higher than the major firms. Across most structured-finance segments, DBRS, Kroll and Morningstar were more likely to give higher grades than Moody’s, S&P and Fitch on the same bonds. Sometimes one firm called a security junk and another gave a triple-A rating deeming it supersafe."

But investors adjust. Moody’s Corp., for instance, gave lower grades to some tranches of commercial mortgage-backed securities than its competitors did, with the result that “by 2015, issuers ‘essentially stopped soliciting our ratings’ on those slices.” And investors priced those tranches accordingly:

"Investors demanded higher yields on triple-B portions of deals without Moody’s ratings than on triple-B slices that included Moody’s during 2011 to 2014, according to a Journal analysis of Commercial Mortgage Alert data. The difference was about three-tenths of a percentage point more, on average, than benchmark triple-B rated CMBS—which means it was costlier to borrow than comparably rated debt."

Investors saw CMBS tranches with Baa Moody’s ratings and paid one price for them; they saw CMBS tranches with BBB ratings from other agencies (but not Moody’s) and paid a lower price for them. The market does not blindly buy bonds based on ratings.
I'll also note the Aaa rating these bonds received was specifically Moody's, who are noted for their more discretionary, less lenient ratings recently.
  by Arlington
I'd say that's pretty nice station spacing in the long run, particularly if they can have an express leading a local on rush-hour runs.

TPA Tampa Airport
TCS Tampa Central Station
Sun Rail
Cocoa (Port Canaveral)
(Ft Pierce or Stuart, pick one)
Palm Beach Gardens
Boca Raton
(FLL Airport or Aventura, pick one)
Miami Central
Port of Miami
  by Gilbert B Norman
While FECI represents a "pebble on the beach" to SoftBank - and VT/BL/AAF maybe a "boulder on that beach", I must wonder what impact, such as a spinoff, the "bad bets" SoftBank has been placing of late, will have upon FECI. The linked Times article does not have any mention of FECI - let alone Brightline, and is presented here only for deep background:

https://www.nytimes.com/2019/11/06/busi ... ework.html

Fair Use:
..TOKYO — Masayoshi Son makes big bets. Over nearly four decades, the chief executive of SoftBank Group of Japan has spent vast amounts of money to build an investment empire that spans countries and industries and that has increasingly shaken up the technology world.

On Wednesday, Mr. Son, 62, defended that legacy in the face of his biggest setback in years. SoftBank reported that it had taken a nearly $4.6 billion hit from its investment in WeWork, the troubled office-space company that has come to symbolize the excesses of start-up culture.

“In the case of WeWork, I made a mistake,” he told investors at a news conference in Tokyo. “I won’t make any excuses. It was a very harsh lesson.”.
  by gokeefe
Reminds me of when Warren Buffet talks about Dexter Shoe. One of the only bad investments he ever made.
  by electricron
mmi16 wrote: Thu Jul 04, 2019 4:41 pm Yes there is. Money. Money they don't want to spend. Money that they want Virgin to spend on them.
Neither Virgin nor Florida East Coast Railroad are require to build highway bridges for these cities. All these cities have the capability to sell bonds to build these bridges, so not having the money now is not a problem.
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