All Aboard Florida execs talk Siemens train purchase, funding options
The phrase “all aboard” is becoming a bit closer to reality for All Aboard Florida (AAF), as officials continue to make progress on the Miami-to-Orlando intercity passenger-rail project. Designs for stations in Miami, Fort Lauderdale and West Palm Beach have been unveiled and are being finalized. Station site prep work is under way, and construction is scheduled to begin in early 2015.
But two of the most significant project announcements to date have come in the past two months.
In mid-September, AAF officials announced they had awarded a contract to Siemens to build locomotives and single-level intercity passenger cars for the corridor. AAF execs chose Siemens after an “exhaustive” search and procurement process that took nearly two years, says President and Chief Operating Officer Don Robinson. The process included trips to Europe, where AAF officials rode trains to get a feel for the type of service and ride quality they want the Florida service to mimic.
Execs focused mainly on higher-speed corridors and trips in the three-hour range — the amount of time AAF trains would take to make the 235-mile trek from south to central Florida.
“As you go a shorter distance or a longer distance, [riders’] needs change,” says Robinson. “During a three-hour trip, how do people use and store their luggage? How do they use dining cars? What seat configurations worked for them?”
Seven rolling stock manufacturers expressed interest in the AAF contract. The agency selected Siemens because of the company’s willingness to adapt products for AAF’s needs. Plant location was a big factor, as well: Siemens will build the locomotives and rail cars at its Sacramento, Calif., plant, meaning the rolling stock will be made in America. The company will retrofit a portion of its plant so it can manufacture the intercity passenger cars — the first such vehicles Siemens will build for a U.S. rail system, says Robinson.
Rolling stock order
AAF’s order includes five trainsets that will operate on the initial Miami-to-West Palm Beach segment. The agency plans to purchase an additional five trainsets once it has financing and environmental approvals secured for the second phase of the project, from West Palm Beach to Orlando International Airport.
AAF officials say they are aggressively pursuing new options for the project on the financing front. The first phase is being funded through equity from Florida East Coast Industries L.L.C., which is developing the project and owns the rail corridor, as well as bonds that were issued earlier this year, says Robinson. AAF had been seeking a $1.6 billion federal Railroad Rehabilitation & Improvement Financing (RRIF) loan to help finance the second phase, but now is considering issuing private activity bonds to solicit debt financing from private capital markets.
Seeking private equity bonds
Doing so would ease taxpayers’ concerns that they might be on the hook for any project financing, says Robinson. The alternate financing also could be quicker to obtain.
“[This option] … gives us responsibility of and control over the timing of the process,” said AAF President and Chief Development officer Michael Reininger during an audio interview posted on the Treasure Coast Newspapers’ website on Oct. 7.
The private activity bond program is administered by the U.S. Department of Transportation, which must approve AAF’s application for a $1.75 billion bond allocation. Depending on the approved amount, AAF would be able to either eliminate or significantly reduce the requested amount of the RRIF loan, says Reininger.
All Aboard Florida to state agency: No local governments would oppose its new financing plan
More than 38,000 people have signed petitions to stop All Aboard Florida. Protests have reached the governor, members of Congress and the U.S. secretary of transportation.
Yet despite a groundswell against the proposed high-speed train, specifically on the Treasure Coast, All Aboard Florida has told the state it doesn’t know why any city, county or other local government would oppose issuance of tax-exempt bonds to fund its project, Scripps Treasure Coast Newspapers has learned.
All Aboard Florida avoids even mentioning the vehement opposition with a plan to cut off the Treasure Coast from any of the bond money, instead spending $1.3 billion of it in the other five counties along its 235-mile corridor.
It’s a subtle distinction in All Aboard Florida’s application to the Florida Development Finance Corp.
“AAF has received clear and consistent support from each county in which proceeds from the private activity bond will be invested,” the company wrote in its application for the bonds.
Where the application asks, “Are you aware of any reason why any local government unit (city, county, special district, etc.) would not want Florida Development Finance Corp. to issue bonds in connection with this transaction,” All Aboard Florida marked “No.”
The application — submitted Sept. 24 and signed by Michael Reininger, All Aboard Florida president and chief development officer — was obtained by Scripps Treasure Coast Newspapers under Florida’s public-records law. Reininger certified that “The information contained in this application is … complete and accurate and presents fairly the condition of the applicant … ”
Asked if the company had answered the question about opposition honestly, All Aboard Florida declined to comment.
Bill Spivey, Florida Development Finance Corp. executive director, said his agency asks about opposition “to make sure if there are any issues, we’re aware of it. Typically, bondholders want to know if there are any issues. We want to be fully apprised.”
Spivey also stressed his agency has “nothing to do with anything other than financing.” Issues such as zoning, development and land use — and other concerns that ignited a firestorm against the $2.25 billion project — are beyond the authority of the Florida Development Finance Corp., he said.
All Aboard Florida plans to spend more than $387 million to upgrade its rail right of way through Martin, St. Lucie and Indian River counties, according to an economic impact study commissioned by the railroad. Yet while its application to the state confirms no money from the private activity bonds would be spent on the Treasure Coast, the company won’t comment on how it would pay for construction here.
It also refused to explain why it chose to use the bond money only in Miami-Dade, Broward, Palm Beach, Brevard and Orange counties.
“We are a privately owned company and are not disclosing our capital structure,” the company said in a statement. “All Aboard Florida is fully financed to begin construction on the south segment (from Miami to West Palm Beach). Proceeds from the private-activity bonds; equity contributions from All Aboard Florida’s parent company, Florida East Coast Industries; and rolling stock financing will provide all the funding necessary to develop the project from Miami to Orlando.”
All Aboard Florida has asked the U.S. Department of Transportation to authorize the sale of $1.75 billion of tax-exempt private-activity bonds. The railroad would pay a fee to Florida Development Finance Corp. to be the “conduit issuer,” and would begin marketing the bonds before the end of the year, according to its application.
All Aboard Florida initially asked the federal government for a $1.6 billion low-interest loan, a part of its plan that has drawn some of the most strenuous criticism. However, if the tax-exempt bonds are approved, the loan “would either be completely replaced or substantially reduced, ” Husein Cumber, Florida East Coast Industries executive vice president, said last month.
In addition to buying locomotives, train cars, maintenance equipment and equipment for its stations, All Aboard Florida plans to use money from the private-activity bonds to pay off $405 million it borrowed through a bond offering in July, according to the bond application. All that money remains in escrow, according to the application.
Private Activity Bonds
All Aboard Florida wants to scrap its request for a $1.6 billion federal low-interest loan and instead borrow $1.75 billion by having the state issue tax-exempt public-activity bonds. How would that work?
The U.S. Department of Transportation must approve “allocation” of the $1.75 billion, meaning it authorizes the amount of bonds to be sold.
All Aboard Florida pays Florida Development Finance Corp. an issuance fee as the “conduit issuer.”
Florida Development Finance Corp.’s name is on the bonds, but the state of Florida is not financially at risk if All Aboard defaults. The state does not pledge its credit, any cash or anything else, and acts only as a financing conduit, not a lender.
Bond interest rate is set by a third-party underwriter, based in part on market conditions, before the sale.
With a bond sale this large, buyers typically would be institutional investors.
All Aboard would repay investors their principal plus interest. Term of the bonds has not been determined, but state law sets a maximum of 30 years.
Investors would be exempt from paying federal income tax on the interest earned.
Brevard and Miami-Dade County commissions last month voted to approve the amount of bond proceeds to be used locally. It was required because they are the only counties along the All Aboard Florida corridor whose interlocal agreements with Florida Development Finance Corp. include “bond caps.”
Source: Florida Development Finance Corp.