Construction of high-speed rail line delayed as bond sale postponed

Construction on a long-anticipated high-speed train between Las Vegas and Southern California that was to begin this year has been delayed indefinitely because of financing issues.

Brightline West announced Friday it was delaying a $2.4 billion bond offering that would have funded the initial work on the planned $8 billion project.

Brightline tied the delay to market conditions brought on by the COVID-19 pandemic and this being an election year. Nevertheless, Brightline insisted there’s still investor interest in the project and it will continue to move forward.

“Brightline West received a significant amount of investor interest, despite the challenging market,” a Brightline representative said. “We ultimately had a deal, but it would have been restrictive.”

There is no timetable for the bonds to be marketed again, but Brightline said it will continue to monitor timing and market volatility before returning to the market with the bond offering.

“We have always said we will fund this project with a combination of equity and debt — exactly as we have in Florida,” a Brightline representative said, referring to a passenger rail system the company operates in that state. “That continues to be our plan.”

Bond reallocation

The bond offering was to consist of private activity bonds from California and Nevada.

Terry Reynolds, director of Nevada’s Department of Business, said the state is aware of the bond delay and it’s probably a good thing for potential investors in the project.

“Issues this large where you have unsecured bonds out on the private market (are) very tough right now,” Reynolds said. “We do housing bonds, and they seem to be doing fine and other bonds. But this one, because of its size and because of the instability in the market with investors, it’s probably to their benefit to wait.”

Reynolds said if Brightline plans to delay the bond offering past a Dec. 31 deadline, he would recommend that Nevada reallocate the funds for affordable housing.

“Nevada has affordable housing needs, and I think the answer for us is easy, to reallocate it to housing,” Reynolds said. “We know there is some demand and they would be used. We front-loaded $200 million into housing in 2019, so this would put a substantial amount in. We should be good for another year and a half or so, with putting $200 million into our affordable housing.”

The Private Activity Bond Advisory Board could vote on allocating the money at a December meeting when the reallocation of unused funds is considered. IRS guidelines require the state to finalize the use of its bond volume cap by Feb. 15, Reynolds said.

California Treasurer Fiona Ma also cited current market conditions and said she is hopeful the project will go ahead at a later date.

“Unfortunately there is not a lot of liquidity in the market and a lot of economic uncertainty at this moment,” Ma said in an email. “The project is postponed until market liquidity improves.”

As with Nevada, California will also look to reallocate its funds tied to the project to affordable housing projects.

“We will first apply the $600 million to the housing deficit (since we overallocated the bonds in a previous round to award more finance/shovel-ready projects during this COVID-19 time) and then the remainder will go towards non housing projects,” Ma said.

Project plans

The project, also known as XpressWest, has been in discussions for over a decade, with the Fortress Investment Group-backed Brightline coming into the fold in 2018.

Brightline then entered into a marketing agreement with Virgin, to brand the potential high-speed rail line as Virgin Trains USA, but that partnership ended this year, and last month the project was rebranded as Brightline West.

The line was slated to transport travelers between Las Vegas and Victorville, California. From there, Brightline had agreements in place with state officials to continue the line to Rancho Cucamonga, California, where travelers could link to downtown Los Angeles via the Metrolink passenger rail line.

If the bonds were sold this year, plans called for construction to begin by the end of this year with the system up and running in 2024. With the bond financing delay, that timeline is set to be altered as well.

“We will re-evaluate the timeline and plan to break ground as soon as possible,” the Brightline representative said.

In the meantime, Brightline will continue finalizing aspects of the project with the Nevada Department of Transportation and California officials.

“There is still work done to ensure the project is fully ready to go,” the Brightline spokesperson said. “We have teams of people in Nevada working with NDOT and Caltrans on this project, and that work continues.”

Contact Mick Akers at makers@reviewjournal.com or 702-387-2920. Follow @mickakers on Twitter.