Less than a month after cancelling its planned initial public offering (IPO) on Nasdaq, in early March Virgin Trains USA LLC withdrew its application for a $3.7 billion Railroad Rehabilitation & Improvement Financing (RRIF) loan to build a higher-speed train from Orlando to Miami.
The latest setback for the train, formerly Brightline, now leaves the project in some doubt after the company reportedly posted a $117 million loss on $10 million of revenues in 2018 and projects losses between $15 million to $36 million in 2019.
Now, the train’s last leg of financing comes from a separate Department of Transportation $2.7 billion allotment of tax-exempt municipal private activity bonds, the largest ever allocation in the program’s history. That included an initial $600 million issue that was used to pay off millions of corporate debt at a high interest rate. Afterward, the company came back for another $1.15 billion of bonds and most recently yet another $950 million was approved.
On April 2, Virgin Trains USA sold $1.75 billion of the bonds, which included the $1.15 billion of bonds and refinanced the initial $600 million again. The bonds will pay interest between 6.25 percent and 6.5 percent.
While the Department of Transportation has already approved the latest private activity bond allocation of $950 million, the final decision had been delayed at the Florida Development Finance Corporation (FDFC) but could be formally approved at its April 5 meeting.
The agency and the Department of Transportation should be asking whether the latest approval will not just result in another round of musical chair refinancing for a project that has already been delayed for years.
The plan also counts on substantial customer demand once the tracks do get laid to Orlando. Right now, the train offers service between Miami and West Palm Beach.
Currently, Amtrak already offers express service between Orlando and Miami that takes about five and a half hours. The Virgin Trains USA line would reportedly cut an hour and a half to two hours off that.
High speed rail is a long-term objective of Green New Deal proponents who want to end air travel and eliminate carbon emissions, but with so many alternatives including driving presently available, it is unclear how viable such an expensive endeavor will be.
As it is, it remains to be seen what demand there is for a slightly faster option from Orlando to Miami, and also for the service that will run up Florida’s east coast. Virgin is betting that the customers will come but it may be the state of Florida that ends up holding the bill if the project ultimately fails.
Robert Romano is the Vice President of Public Policy at Americans for Limited Government.