According to the U.S. Department of Transportation’s (USDOT) website, which lists Brightline West as a “loan applicant,” and as reported by Bloomberg, the price tag for the private high-speed passenger railroad has swelled by nearly 35%. The higher cost has led the Fortress Investment Group-backed company to seek a $6 billion from the POTUS 47 administration.
Last month, Brightline CEO Mike Reininger said construction costs were increasing “due to rising labor and material costs, in part caused by high demand due to proliferation of data centers, power plants, and transportation projects,” according to the Bloomberg report.
“Given the increase in project costs we needed to figure out a way to advance the project,” Reininger said in an email.
According to the report, the federal loan “will take the place of a $6 billion bank facility on Brightline West’s original financing plan.” The company, Reininger said, “plans to raise equity to cover most of the $5.5 billion increase in construction costs. It initially targeted an equity raise of $1 billion.”
“We have had very productive conversations with USDOT and the Federal Railroad Administration the last few months to continue to move Brightline West forward,” Reininger said in an email.
U.S. Transportation Secretary Sean Duffy “has bashed a separate long delayed effort in California to build a high-speed rail to connect Los Angeles to San Francisco as a waste of taxpayer dollars. Costs for the project, initially pegged at $33 billion in 2008, have ballooned to an estimated $89 billion to $128 billion. In August, Duffy said he was canceling $4 billion of federal support for the ‘boondoggle,” according to the Bloomberg report.
The POTUS 47 administration earlier this year also terminated a $64 million planning grant for a high-speed rail line between Dallas and Houston, according to the report.
In contrast, Bloomberg reports, Duffy has “praised” the mostly privately financed Brightline West, which received a $3 billion grant from former President Joe Biden’s infrastructure law.
Chad Farrington, co-head of municipal-bond strategy at DWS Group, said the increased project costs “isn’t a positive development, but the tally is still lower than other similar high-speed rail projects,” according to the report. DWS Group holds $17 million of Brightline West’s $2.5 billion of municipal debt outstanding.
“Fortress has a proven ability in the past to secure financing, which is a plus,” said Farrington, referring to the project’s backer.
Prices on Brightline West bonds issued by the California Infrastructure and Economic Development Bank “declined [Oct. 1] following the disclosure of the railroad’s rising costs. Bonds with a 9.5% coupon traded at an average of 87.3 cents down from 91.6 cents on Sept. 23, the last time the securities changed hands. The spread, or risk premium, on the bonds compared with AAA-rated municipal bonds widened to an average of about 900 basis points from 825 basis points,” according to the report.
Brightline West, Bloomberg reports, “is betting it can capture about 20% of the 47 million annual trips projected between Southern California and Las Vegas by 2031,” according to bond offering documents. The all-electric trains on the rail line, built along a median on Interstate-15, are expected to reach speeds as high as 200 miles per hour. Service is expected to begin in September 2029.
Still, Brightline “has the challenge of convincing riders to commute to its rail station, in Rancho Cucamonga, which will be located about an hour from downtown Los Angeles. From there, the train to Vegas is expected to take roughly two hours,” according to the report.
Comparatively, a flight from Los Angeles to Las Vegas is about 2.5 hours, including idle time at the airport, while a drive between the two cities can range from 3.5 hours to six, according to the report.
The federal government, Bloomberg reports, is authorized to provide as much as $35 billion in direct loans and loan guarantees to finance development of railroad infrastructure via the Railroad Rehabilitation and Improvement Financing (RRIF) program. “The loan’s lower interest rate and long tenor make it an ideal source of capital,” Reininger said. “The loan can fund as much as 100% of a railroad project with repayment periods of as long as 35 years and interest rates equal to the cost of borrowing to the government plus a premium to account for credit risk.”
“Brightline West may line up a smaller bank facility to round out a financing plan, which also includes $5.5 billion of tax-exempt bonds,” according to Reininger.
“We need to aggregate a little more debt and a lot more equity than we originally planned and so in the face of this, the RRIF loan program became a more important and attractive alternative,” he said.
