Would You Invest in Virgin Trains USA LLC?

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According to David Peter Alan, “Whatever else the future may bring, for the next 20 years, and possibly the next 40, the bold and colorful Brightline brand and logo will disappear. In all likelihood, it will never come back.

A brand is a valuable asset, and companies fight hard to protect their brands.  Here, Brightline sold, or perhaps even abandoned, that valuable asset. The company’s fortunes will now rise and fall based on Virgin’s decisions, more than on decisions made by incumbent managers, even if they keep their jobs.”

[David Peter Alan practices intellectual property and business law. He is also an advocate for train and rail transit riders at the New Jersey and national levels, and he enjoyed his rides on Brightline.]

Virgin Trains USA Inc. filed for an Initial Public Offering for $ 100,000,000 on the Nasdaq on November 16, 2018.

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

Virgin Trains USA LLC* 

(Exact Name of Registrant as Specified in Its Charter)

CALCULATION OF REGISTRATION FEE

Title of Each Class of Securities
To Be Registered
Proposed Maximum
Aggregate Offering Price
(1)
Amount Of
Registration Fee
(2)
Common stock, $0.01 par value per share $100,000,000 $12,120

The new U.S. venture is positioned as an “emerging growth company” (S-1 statement at 13 and 44), so the disclosure requirements are reduced.  Nevertheless, Virgin Trains disclosed a lengthy litany of “Risks Associated with our Business” that a prospective investor could assume (at summary pages iv-v and pages 14-15 and 19-45) .

An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below together with other information set forth in this prospectus before investing in our common stock.

[The regulatory filing shows that the rail service continues to lose money, posting a loss of $87 million for the first nine months of 2018. And passenger revenue of $4.8 million through the first nine months of the year lags far behind the $23.9 million that Brightline had projected for the full year of 2018.]

Risks Associated With Our Business

  • Our limited revenue and cash flows and our limited history constructing and operating a passenger railroad makes evaluating our business and future prospects difficult, and may increase the risk of your investment. There can be no guarantee that we will achieve profitability and generate positive operating cash flows in the future.
  • Our limited operating history also may limit your ability as an investor to evaluate our prospects due to our lack of historical financial data, our unproven potential to generate profits and our limited experience as a new company in addressing issues that may affect our ability to manage the construction, operation or maintenance of a passenger rail service.
  • You must consider the risks and difficulties we face as a passenger rail company with limited construction and operating history. If we do not successfully address these risks, our business, prospects, operating results and financial condition will be materially and adversely harmed.
  • With our current limited revenue and cash flow history, and the significant uncertainty regarding our ability to achieve profitability and generate positive cash flows in the future;
  • We have limited revenue and cash flows and limited history constructing and operating a passenger railroad;
  • Under the Virgin License Agreement, we are required to complete our rebranding from “Brightline” to the Virgin Trains USA brand by December 2019.
  • We do not own the Virgin brand or any other Virgin-related assets, as we licensed the right to use the Virgin brand pursuant to the trademark license agreement we entered into with VEL on November 15, 2018 (the “Virgin License Agreement”).  There are certain circumstances under which the Virgin License Agreement may be terminated in its entirety.
  • We will be required to devote significant resources to our intended rebranding of our business from “Brightline” to “Virgin Trains USA.”
  • Our ability to complete construction of the North Segment of our Florida passenger rail system will be contingent on our ability to obtain certain land rights from Cocoa to Orlando which will require us to satisfy the conditions precedent to effect a definitive agreement with the Greater Orlando Airport Authority in connection with our Florida passenger rail system;
  • We have experienced cost overruns in connection with the construction of the South Segment and may also experience cost overruns in connection with the construction of the North Segment. For example, unforeseen or unexpected delays may increase the overall budget for our Florida passenger rail system and, under certain circumstances, we may be responsible for the increased costs. Furthermore, budgeted contingencies may not be sufficient to cover the full amount of such expenses.
  • Shared use of our rail corridor with freight operations could have an adverse effect on our ability to utilize our railway efficiently, which could impact our operations and financial condition.
  • We may be subject to litigation, which could have a material adverse effect on our ability to complete our Florida passenger rail system in a timely manner or our business, financial condition, operating results, cash flows, liquidity and prospects.
  • We may incur liability under and costs to comply with environmental laws relating to the development and operation of our Florida passenger rail system.
  • We have limited revenue and may not be able to generate sufficient cash to service all of our existing and future indebtedness and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
  • We have a substantial amount of indebtedness, which could adversely affect our business, financial condition and operating results. In addition, we may incur additional debt in the future…Our total indebtedness is approximately $625 million and is expected to increase substantially in connection with the construction of the North Segment…
  • An active trading market for our common stock may never develop or be sustained.
  • The market price and trading volume of our common stock may be volatile, which could result in rapid and substantial losses for our stockholders.
  • We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our common stock less attractive to investors.
  • We may be unable to achieve our anticipated ridership, revenue or margin in our first stabilized year. Our estimates are subject to change and may differ materially from those presented above. 

Richard Branson said in a statement: “We have had a lot of fun and success creating innovative transport businesses that shake up markets and establish loyal followings.

Brightline is at the forefront of innovation in this market, and the ideal partner for Virgin to work with to alter perceptions and traveling habits across the United States.”

How much does it cost to create “innovative transport businesses,” “shake up markets” and “alter perceptions and traveling habits?”

Could Virgin Trains USA be an experiment?

On another note, as reported by David Alan, “Virgin Trains reports that Brightline has been paying hefty sums to its parent company, Florida East Coast Industries. The rail service is on the hook for rent payments that include $98,000 a month for the parking garage in downtown West Palm Beach, $23,000 a month for the station in West Palm Beach and $15,000 a month for [right-of-way] in West Palm Beach. That’s $1.6 million a year in rent just for the Palm Beach County facilities.”

We will be reporting on this for you upon further review of the Form S-1.

Related Article:

https://verocommunique.com/2018/12/30/will-virgin-trains-usas-brand-help-former-all-aboard-florida-brightline-raise-1-85-billion/

Sources:

https://www.citizensagainstthetrain.com/content/news-about-all-aboard-florida

https://www.railwayage.com/passenger/high-performance/brightline-goes-virginal-what-price-virginity/

https://www.sec.gov/Archives/edgar/data/1737516/000114036118043289/s002218x4_s1.htm

Virgin

 

 

 

 

 

One thought on “Would You Invest in Virgin Trains USA LLC?

  1. Thank you, Thomas, for your articles on the AAF/Virgin Train financial situation. What should not be left out of the financial picture is the fact that a study recently completed by the Florida Legislature shows a glaring lack of regulations covering what they call HIGHER speed rail – trains going between 80 and 125 mph – which these trains will. Every Florida resident should be outraged with this situation!
    Once we have a new Governor who wants to save lives, we will have regulations and they will not be cheap to meet. AAF/Virgin has been planning their rail system under the ‘recommendations’ of the Fed Rail Admin. but the FRA recently admitted the FL DOT is the real regulator of trains within the state. AAF/Virgin has been using better safety features as a bargaining chit to force counties to go along with their plans – safety features that should be REQUIRED! They truly have been putting Profits Over Lives as we said from the beginning.
    Their capital costs will skyrocket when they have to develop sealed corridors along their entire route which plans to reach Tampa and Jacksonville. Our friends in Daytona should be very concerned – their county has 70 at grade crossings!
    Here’s just some of the findings from the study conducted for the Florida Office of Program Policy Analysis and Government Accountability (OPPAGA):
    The most troubling findings:
    • The high rate of severe injuries and fatalities on railroad right of ways including those of Sun Rail, Tri Rail and Brightline, now Virgin Trains. “Florida’s severe injury rate is 1.5 times higher and its average fatality rate is 3.5 times higher than overall national rates…” (2009 – 2018)
    • Florida ranks 8th in the nation for its grade crossing index because rail operations take place in more population-dense areas than the US average. AAF/Virgin Trains plan to extend their routes to Tampa and Jacksonville through very dense areas of the state.
    • There is a gap in federal and state regulations governing highER speed rail. While there are regulations governing trains operating at speeds up to 79 mph and 125 mph, the standard for High Speed Rail, neither agency has developed additional regulations governing higher-speed trains going 80 – 124 mph.
    • FDOT’s mandate on passenger rail oversight needs to be clarified and FDOT needs to promulgate regulations governing higher speed rail to ensure proper maintenance, safety, revitalization and expansion.

    Like

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