All Aboard Florida seeks private financing to replace or augment federal loan request

Publish Date: 
Tuesday, October 7, 2014 - 1:00pm

By Kim Miller Palm Beach Post

All Aboard Florida has changed its plan to pay for its express passenger rail line and will seek private debt financing that will replace or substantially reduce its current federal loan request, according to its website.

The private company, which plans to run 32 trains per day from Miami to Orlando, has applied for a $1.6 billion loan with the Federal Railroad Administration, but says  it “has decided to pursue” the alternative route of a private activity bond allocation to pay for West Palm Beach to Orlando leg of the track.

The Miami to West Palm Beach portion of the plan was paid for with $405 million in high-risk bonds that the company sold in the spring.

“Proceeds from the PABs, equity contributions from All Aboard Florida’s parent company, Florida East Coast Industries, and rolling stock financing, will provide all the funding necessary to develop the project between Miami and Orlando,” All Aboard Florida’s website says.

The $405 million in privately offered notes, which carry a 12 percent interest payout, were expected to be paid off by the $1.6 billion publicly subsidized federal loan once it was awarded.

In a prospectus for the bond sale, potential buyers were told that All Aboard Florida may redeem all or part of the notes sometime before the end of 2016 “with the proceeds of a Government Loan.”

All Aboard Florida said it floated the bonds because it didn’t want to wait to begin construction until the loan was awarded. An environmental impact statement, which was released last month, had been delayed since the spring, and a 75-day comment period still stands in the way of the loan being considered.

The company already pushed back the start date of the West Palm Beach to Orlando service to early 2017.

Cato Institute rail expert Randal O’Toole has said in the past that he is skeptical All Aboard Florida will be profitable either as a transportation or real estate investment.

At the same time, All Aboard Florida opponents have questioned why the federal government would loan money to a project that is considered so high-risk in the private sector that it required a 12 percent bond yield.

“The money they borrowed in the marketplace was at a junk bond level,” said Steve Ryan, a Washington, D.C.-based attorney hired by the group Citizens Against Rail Expansion. “To me, raising money at junk bond levels is not an indication of strength.”
All Aboard Florida has said the total cost for its unprecedented project is $2.5 billion, and the prospectus notes that parent company Florida East Coast Industries has contributed $345 million in cash to the plan. It has also contributed to the land purchased for the stations in Miami, Fort Lauderdale and West Palm Beach, which is valued at approximately $730 million, according to the prospectus.
“They definitely have skin in the game,” said Chris Kotowski, an analyst at Oppenheimer & Co. in New York. “Three hundred and forty-five million dollars, that’s not peanuts.”

In general, though, the RRIF program authorizes the Federal Railroad Administration to provide direct loans and loan guarantees up to $35 billion to finance development of railroad infrastructure. Up to $7 billion is reserved for projects benefiting freight railroads.
The money may be used to acquire and improve rail equipment or facilities, refinance outstanding debt taken on to rehabilitate rail lines, and develop new intermodal railroad facilities — all things All Aboard Florida plans to do.
If the company’s $1.6 billion request is granted, it will be the largest RRIF loan awarded to date.