Would You Buy All Aboard Florida’s Private Activity Bonds?



“When the Florida Development Finance Corporation (FDFC) issued the tax-exempt Private Activity Bonds, it came as no surprise. The $1.8 billion was already budgeted prior to the meeting on August 5th, 2015.

More significant was the accompanying Risk Report that listed 25 pages of high risks associated with AAF’s would-be buyers of the bonds. This report was preceded by two years of desperate attempts by AAF to raise funds for its Project, beginning with the $1.75 billion RRIF loan, which by the way is still on the table. In the RRIF application, AAF admitted that “Traditional debt financing is not feasible,” indicating that the Project could not succeed in the free market.

The Risk Report was also preceded by AAF sale of $405 million in junk bonds at an interest rate of 12.75% which are sitting in escrow accumulating debt at an annual rate of $50 million per year pushing AAF further in debt. Attached to these bonds, AAF was forced to offer collateral—the keys to the house to Florida East Coast Railway (FEC) that is, a land lien and loss of right-of-way privileges to operate in the FEC corridor if the bonds are not paid back. Falling further in debt, these distressed security bonds plummeted to a record low of 93.5 on the dollar, pushing the yield to 14.7% on bonds that they are afraid to sell.

Included in the 25-page risk report:

‘The Company (AAF) may not be able to obtain or maintain required permits, consents, approvals, liens, entitlements, and other authorization for certain components of the Project, and any failure or delay in doing so would impede completion and/or operation of the Project and could have a material adverse effect on the Company.’

‘There can be no guarantee that the Company will achieve profitability and generate positive cash flows in the future (required to pay back the bond holders).’

‘The company may not be successful in implementing its proposed business strategy.’

‘Despite the Company’s indebtedness, the Company and Company’s subsidiaries will still be able to incur significant amounts of debt which could further enhance the risks associated with the Company’s indebtedness.’

The list goes on for 25 pages. Not exactly a benchmark recognized by Forbes, Baron, Bloomberg or the Wall Street Journal as motivational material for potential investors. Of course AAF is not a member of the Securities and Stock exchange so they do not have to disclose private information normally required by a transparent or legitimate business. At the outset none of this points to financial success.”

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