Publish Date: 
Saturday, December 20, 2014 - 6:30am

By Arnie Rosenberg TCPalm

All Aboard Florida has won federal approval to borrow $1.75 billion, clearing a critical hurdle in its plan to build a high-speed passenger railroad linking Miami and Orlando.

The U.S. Department of Transportation on Thursday gave All Aboard Florida the OK to sell private-activity bonds to help finance its $2.25 billion project. The Department of Transportation on Friday declined to confirm the action by its Credit Council, but members of Congress whose districts are along the rail corridor confirmed being notified of the approval.

Michael Reininger, All Aboard Florida president and chief development officer, called the federal approval “another step forward toward realization of the project.” 

Federal approval was the first step in the funding process. All Aboard Florida now will continue working with the Florida Development Finance Corp., a state agency which will issue the bonds. 

The state, however, will have no financial obligation to the project, and its credit would not be at risk if All Aboard Florida defaults on the bonds, state officials said.

Still on the table, however, is All Aboard Florida’s application for a $1.6 billion loan from the Federal Railroad Administration. 

All Aboard Florida officials have described the bond financing as an alternative to the loan. Selling bonds on the private financial market may replace the loan “in whole or in part,” Reininger said Friday, but a decision on how to proceed won’t be made until the bond process is completed through the Florida Finance Development Corp., he said.

Reininger would not predict when the bonds would be sold. Florida Development Finance Corp. officials could not be reached for comment.

Still, from the earliest days of All Aboard Florida opposition, that loan has been a focal point for critics. They claimed that a federal loan flew in the face of All Aboard Florida’s long-stated position — that it would be the country’s first privately built and operated railroad.

Opponents worried that taxpayers would be left with nothing but the collateral — All Aboard Florida’s right of way, its tracks and its train cars — if the company defaulted on the loan.

All Aboard Florida’s state application for issuance of the bonds raised questions when it specified the money would be spent in five of the eight counties along its 235-mile corridor, but not in Indian River, St. Lucie or Martin counties. Excluding the Treasure Coast — the epicenter of opposition — from any bond money spending allowed the railroad to tell the state agency that it had “clear and consistent support from each county in which proceeds from the proposed private-activity bond issuance will be invested.” 

All Aboard Florida plans to spend more than $387 million to upgrade its rail right of way through Martin, St. Lucie and Indian River counties, according to an economic impact study commissioned by the railroad. Reininger said work along the Treasure Coast would be financed with equity — money from All Aboard Florida parent company Florida East Coast Industries — instead of money from the bonds.

In addition to buying locomotives, train cars, maintenance equipment and equipment for its stations, All Aboard Florida plans to use part of the $1.75 billion in bond proceeds to pay off $405 million it borrowed through a bond offering in July, according to the state bond application. All that money remains in escrow, according to the application.

How do private-activity bonds work?
All Aboard Florida has received federal approval, called an “allocation,” to sell $1.75 billion of tax-exempt public-activity bonds to help finance its $2.25 billion project. How will that work?

Now that the U.S. Department of Transportation has approved the allocation, All Aboard Florida turns to the Florida Development Finance Corp., paying the state agency an issuance fee as the “conduit issuer.” 

Florida Development Finance Corp.’s name is on the bonds, but Florida is not financially at risk if All Aboard Florida defaults. The state does not pledge its credit, any cash or anything else, and acts only as a financing conduit, not a lender. 

Bond interest rate is set by a third-party underwriter, based in part on market conditions, before the sale.

With a bond sale this large, buyers typically would be institutional investors.

All Aboard Florida would repay investors their principal plus interest. Term of the bonds has not been determined, but state law sets a maximum of 30 years.

Investors would be exempt from paying federal income tax on the interest earned.

Proceeds from the bonds would be used by All Aboard Florida for construction and equipment in Miami-Dade, Broward, Palm Beach, Brevard and Orange counties, but not in Martin, St. Lucie and Indian River counties.