Brightline trains can go as fast as 125 miles per hour on trips between South Florida and Orlando. That makes it one of the fastest passenger trains in the country. But it's racing to boost its business fast enough to make its debt payments on time — and may be running out of track.
"They're just not getting enough people to get out of their cars and get onto the train at the right price," said Trevor D'Olier-Lees, managing director at S&P Global. The credit ratings agency made a deep cut to Brightline's credit rating late last year. That downgrade further into junk bond territory included analysts warning that they "expect a higher probability of default" by next January.
D'Olier-Lees was more direct in an interview with WLRN. " They will default unless something happens," he said.
Brightline already has missed two interest payments on some of its bonds. It acknowledged deferring payments due this month when it released its December ridership report. This is the second time it has delayed payment. Brightline's bond agreements allow it to postpone one more payment before it's in default.
It also renegotiated how it can pay interest on some of the money it borrowed. It doesn't have to be paid in cash.
"They will default unless something happens."
The company has been telling investors for six months that it is looking to sell a substantial chunk of itself with the money used to pay down its debt load. Changing how some of its interest payments are made could allow Brightline to pay back some of its borrowers by giving them an ownership stake in the company.
The service has been using some of its reserve cash to make payments on other bonds and continues looking for additional financing options. "We have been in discussions for the potential incurrence of up to $100 million of additional debt," it disclosed in its December filing. Brightline has about $2 billion of long-term debt and is scheduled to pay $162 million in interest payments this year.
D'Olier-Lees figured Brightline will be between $20 to $25 million short, though, and missing the payments would trigger a clause accelerating the payment schedule. If that happens, "it'll go into bankruptcy," D'Olier-Lees predicted.
"The public likes the product. But they're not paying top dollar."
That doesn't mean Brightline trains would stop running, however. Lots of companies, especially transportation companies like airlines continue operating while reorganizing their businesses under bankruptcy protection. Broward County-based Spirit Airlines is still flying despite entering bankruptcy for the second time in less than a year.
D'Olier-Lees also pointed out the Channel Tunnel, which runs under the English Channel between the U.K. and France, declared bankruptcy in 2006. It restructured its debt, including swapping a lot of its IOUs for ownership in the project, and remains vital link for cargo and passengers today.
The problem for Brightline is price, not product. In December, the average fare for a trip between stations in South Florida was about $26. That is 11% cheaper than the average fare a year earlier. About $75 was the ticket price for trips that started or stopped in Orlando. That was about the same as it was a year ago.
"The public likes the product. Ridership is reasonably strong, but they're not paying top dollar," said transportation expert Joe Schweiterman, director of DePaul University's Chaddick Institute for Metropolitan Development.
"Price competition's been kind of a boogeyman for me by keeping fares low. The numbers just aren't working right now. There's some reason for optimism but it's a scary time," he said.
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Brightline's business is growing, just not fast enough to keep pace with its debt obligations and nowhere near as fast as Brightline management first expected. According to S&P Global, Brightline originally forecasted ticket revenue in 2025 would be more than $500 million. However, through the third quarter, total revenue – which includes tickets, other passenger fees such as luggage and other lease revenue – was $156 million, significantly below expectations.
"People are just not switching from their cars in enough numbers to rail," said D'Olier-Lees. "In addition Brightline was doing a lot of discounting, particularly of long distance fares and then it was proving very sticky to get those fares up."
S&P bond analysts decreased their revenue forecasts throughout last year, helping lead to a series of credit rating downgrades. The ratings agency wasn't as optimistic as Brightline's own predictions and now believes 2025 ticket sales will be up 14%. That would be less than half of the expected growth rate. And its analysis doesn't think this year will bring a big jump in its growth rate. S&P Global forecasts Brightline ticket revenues will be up 15% this year to around $200 million.
It costs more than that to run the train. Operating expenses in the first nine months of last year were $211 million, leading to an operating loss of $55 million with one more quarter to go for the year. Full year financial information won't be released for several more months.
"We had this aspirational thing that we used to say when we started writing that, you know, we were going to create this car-free lifestyle," said Brightline CEO Patrick Goddard in mid-January speaking on a panel at a Greater Miami and Beaches Hotel Association event. "That was a bit too ambitious. I think we would be happy at this point with a car alternative lifestyle, where people can own a car but have options," he said.
Brightline did not respond to emails from WLRN requesting comment regarding the credit rating downgrade and souring outlook by S&P Global.
Some of Brightline bonds have traded as low as 33 cents on the dollar in a clear sign bond investors are fast becoming skeptical about the company's finances.
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