KBRA Revises Outlook to Negative From Stable, Affirms BBB Ratings for Brightline Florida’s $2.2 Billion Revenue Bonds

KBRA revises its Outlook to Negative from Stable and affirms its BBB ratings for Florida Development Finance Corporation’s (FDFC) aggregate $2.2 billion revenue bonds (Brightline Florida LLC issue, series 2024, tax-exempt), associated with the Brightline Florida passenger rail project. A portion of the PABs ($1.13 billion) benefit from a financial guaranty policy issued by Assured Guaranty Inc., rated AA+/Stable by KBRA.

The Outlook revision to Negative reflects ridership underperformance and higher-than-expected operating expenses compared to our forecasts, as well as continued capacity constraints.

FDFC issued the private activity bonds (PAB) as a conduit issuer and lent the proceeds to Brightline Trains Florida LLC (Brightline Florida) as the borrower. Brightline Florida developed the 235-mile intercity high-speed passenger rail service connecting Southeast and Central Florida in two phases. Phase I, comprising a 67-mile segment from Miami to West Palm Beach, was completed in late 2017, with passenger service offered between Fort Lauderdale and West Palm Beach in January 2018, extending to Miami shortly after in May 2018. Phase II extended the system 168 miles from West Palm Beach to Orlando, commencing service in September 2023. The high-speed rail service spans Miami to Orlando, with main stations in Fort Lauderdale and West Palm Beach, as well as inline stations in Aventura and Boca Raton, both of which started revenue service in December 2022.

Key Credit Considerations

(-/+) Ridership Impacted by Seat Capacity Constraints

Brightline had historically operated 10 trainsets with four cars per train. Since service to Orlando started operations in September 2023, the company has been operating with capacity constraints in short-distance seats to prioritize the higher-paying long-distance trips. These capacity constraints have resulted in lower-than-expected ridership in the short-distance segment through most of 2024. To alleviate such capacity constraints, and as part of Brightline’s initial strategy, 30 additional cars were ordered to allow for the addition of three cars (two smart class and one premium class) per trainset, eventually reaching seven-car trainsets. The first set of 10 cars was delivered in Q4 2024, increasing trainsets to five cars each. A second delivery between March and June 2025 will increase the trainsets capacity to six cars, and a final delivery to reach the seven-car trainsets is expected by Q4 2025. Overall, seat capacity per trainset will increase from the original 240 seats to 450. This additional capacity should allow the company to return to its previous growth trend in the short-distance segment.

(-) 2024 Underperformance Compared to KBRA Rating Case

Short-distance travel was 44.1% lower than KBRA’s rating case due to restricted capacity in that segment of the corridor. However, this was largely offset by long-distance travel being over 2x our forecast. Overall, 2024 ridership of 2.7 million passengers was largely in line with our 2.8 million forecast. Average fares per passenger in 2024 were 24.5% higher than our forecast for the short-distance segment, but 21.1% below our forecast for the long-distance segment. Revenues for the year of $187.9 million were slightly below our forecast of $189.8 million. However, operating expenses were 16.2% higher than the KBRA rating case, reflecting higher labor costs generally due to higher-than-expected inflation as well as higher centrally assessed property taxes. During this period, Brightline also faced costs related to final settlements of project costs with contractors. The operating cash flow deficit was covered with cash available in the ramp-up reserve account (RURA).

(+) Recovery in Short-Distance Ridership as Capacity Constraints are Lifted

Since October 2024, Brightline has been able to reduce capacity constraints as additional cars have been received, which has led to recovery in ridership and revenues. The year-over-year decline in ridership has narrowed from 40% in September 2024 (versus September 2023) to 3.4% in March. KBRA expects this recovery to continue through year-end, based on Brightline’s plan to achieve full capacity by this time.

(+/-) Updated Forecast

KBRA has updated its ridership forecast to account for the project’s performance in 2024 and the restricted capacity in the short term. Short-distance ridership is expected to increase at a 2024-2054 compound annual rate (CAGR) of 1.1% (versus 1.8% in our initial forecast), with long-distance ridership expected to increase at a 9.6% CAGR (versus 10.1% in our initial forecast). Under the updated assumptions, the average debt service coverage ratio (DSCR) is 2.5x. KBRA’s updated forecast incorporates Brightline achieving seven-car-long trains, therefore removing any capacity constraints by year-end. However, if such capacity constraints are not resolved, or if ridership in 2025 fails to meet our current expectations, the rating could be downgraded.

(-/+) Liquidity

The lower-than-expected revenues in 2024 caused a temporary liquidity shortfall that was covered with cash available in the RURA. As of March 31, 2025, the RURA balance is approximately $60 million below KBRA’s expectation, reflecting a draw to cover the operating cash flow shortfall. The remaining liquidity accounts maintain balances in line with our expectations. If ridership does not exceed KBRA’s forecast during 2025, additional shortfalls could occur this year, leading to further draws on the project’s liquidity reserves.

Surveillance Rating Rationale

2024’s capacity constraints—which are expected to persist through most of 2025, albeit to a lesser extent—have increased uncertainty in short-distance ridership performance. Despite certain initial signs of recovery and ridership tolerance to fare increases, KBRA’s long-term expectations for ridership and passenger fares will be shaped by project performance during 2025 and the company’s ability to complete capacity expansion plans on time. Our updated rating case forecasts the project to have average DSCRs of 2.5x through the term of the debt, which, along with an Average KBRA project risk score (KPRS), remain sufficient to support a BBB rating on the PABs. However, the Outlook revision responds to the remaining uncertainty in both ridership and operating expenses during the ramp-up phase, with the former underpinned by the capacity constraints. We could update our forecast if ridership and revenue performance during 2025 is below our expectations, or if operating expenses are higher than the rating case assumption.

Outlook

The Negative Outlook reflects (i) Brightline’s ridership underperformance and higher-than-expected operating expenses compared to KBRA’s forecast for 2024, and (ii) the continued capacity constraints that are expected to impact short-distance ridership through most of 2025. A rating upgrade is unlikely during the ramp-up period, which is expected to go through 2028 under the KBRA rating case. Lower-than-expected ridership and/or revenues, or higher-than-expected operating expenses over the next 12 months, could lead to a rating downgrade if forecast DSCRs are below 2x.

Rating Sensitivities

Higher-than-expected ridership or lower operating costs resulting in sustainably higher cash flow available for debt service after the ramp-up phase could lead to an upgrade.

We could downgrade the rating if there were lower-than-expected ridership and/or revenues, a more prolonged ramp-up period, or higher operating costs than forecast in KBRA’s rating case that result in DSCRs below 2x.

ESG Considerations

Environmental Factors

Brightline Florida’s passenger rail service is estimated to represent a 75% reduction of CO₂ emissions per passenger kilometer compared to car transportation. Therefore, the transaction could potentially benefit from future regulations to address carbon limits and promote public transportation. The company received the green bond designation in 2019.

Social Factors

Preferences for cleaner and more efficient modes of travel could benefit Brightline Florida’s ridership, especially if such preference changes are permanent. However, given the high exposure of the passenger rail industry to economic cycles, ridership could be impacted by economic downturns that result in rising unemployment and a reduction in disposable income.

Governance Factors

Brightline Florida’s management team comprises professionals with a wealth of experience in the transportation and hospitality industries. Further, the company’s construction management and operating teams come from diverse backgrounds with experience in some of the largest rail systems in the country, in addition to benefiting from Siemens engineers on site 24/7.

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