Revenues grow every year, but not enough to cover debts. The Florida company has a total of $5.8 billion in long-term debt, interest on that debt, leases, and other contractual obligations. Of that, $5 billion is debt or interest on debt.
DB2
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I keep on saying, âYou canât go broke as long a you can pay your bills.â
The Captain
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Because of the large upfront construction costs it is necessary to have very deep pockets.
DB2
Investing in technology without checking cash flows is very dangerous.
The Captain
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Itâs because of the pandemic.
No, not the way you think. Itâs a very roundabout impact. Come sit 'round the fire, lads, and Iâll tell the taleâŚ
To get my continuing legal education credits that I need to stay licensed, every year I teach at a big environmental and land use conference. Folks come from around the state, and I would hang out with the Brightline guys at the bar back when they were working through all of this (a few of them at the time came from other development companies down in Miami, so I knew them).
A huge part of Brightlineâs anticipated long-term business model was getting vacationers at Port of Miami and Port Everglades (which is in Fort Lauderdale) up to Disney. Thereâs not much of a reason for people who have cars in Miami/Ft. Lauderdale to take a train instead of driving. But vacationers donât have cars. They anticipated huge demand for excursions and additional days from cruise ship passengers heading up to Orlando. And they expected that their Orlando train stop would go directly to Disney property. The grail was to have cabin-to-hotel room baggage service, with luggage being set outside in the cruise ship corridor and then showing up at your hotel room at Disney.
And then the pandemic.
But not what you think. Yes, the pandemic closed the parks and cruise ships and all that, and obviously mass transit between those attractions suffered as well. More importantly, though, coming out of the pandemic changed Disneyâs business model. Prior to the pandemic, Disney was really focused on driving overall attendance to the parks as high as possible. But after the pandemic, Disney realized that it was more profitable to run the parks at somewhat lower attendance but at higher revenue optimization. Fewer âcasualâ visitors, and instead aiming for folks that were really going to invest in their âDisney Experience.â
They still want volume, to some extent - but the focus shifted. Their primary target customer was now far less the person who wants to spend a day or two at the parks because they happened to be in Florida anyway (or annual passholders), but instead the folks who are really treating this as a âlifetime tripâ kind of vacation.
Anyway, I think that - more than anything - led Disney to pull the plug on having a Brightline station on property back in 2022. The pre-pandemic appeal of Brightline to The Mouse was a big funnel of customers from South Florida directly into the parksâŚand then after the pandemic, the value of that funnel to Disney disappeared. Without Disney being an active and eager participant and promoter of the service, I think Brightlineâs business model suffered.
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Itâs hard to imagine liquidating. Yes their trains can be sold but who would buy their rail real estate.
The most logical step is to renegotiate terms w their lenders. Maybe lenders displace shareholders but trains are likely to continue to run.
Financing new construction could be more difficult. Does this include the western line under construction from LA to Las Vegas? Arenât they building an extension to Tampa?
The real estate may be close to or in commercial and industrial zones. Also utility lines of all sorts can be along the lines for the leasing.
It would depend on the details. Iâm not sure how much real estate they actually own. They donât own the tracks, or at least not most of them - they use FEC rights of way. I know that a fair chunk of the real estate that was developed around the Miami station was sold off as part of the funding of the initial development phase, and the Orlando Airport station is airport property under lease.
A liquidation might simply be selling the trains and their usage rights over the tracks, which might or might not end up being used by someone to run the same system. Though I suspect if that was the case, youâd more likely see one of the transit agencies just take over the companyâs operations, rather than get to the point where assets were liquidated.
As always, it will depend on whether theyâre earning an operational profit outside of their debt service. If the trains are making money, then restructuring the debt can get them out of dodge - but if the operations are losing money and there isnât a path forward, then of course thereâs no light at the end of the tunnel.
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How do you know how I think?
How do you know what I think?
How does your reply relate to my post?
If I were you I would know what you think!
The Captain
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I was being humorous. The âyouâ wasnât directed at you, individually, captainccs - but a generic âyou.â Itâs an aside recognizing that when talking about a mass transit system - especially one thatâs aimed at connecting two large tourist destination - the rhetorical âyou, the readerâ might immediately note (correctly!) that thereâs an obvious way that the pandemic would disrupt their business model and injure their finances. It contrasts with the point that I was making, that the real impact of the pandemic on them was a second-order impact: they werenât severely damaged as much by the pandemic itself, but the fact that the pandemic caused their largest draw (Disney) to change how they did business.
You had noted that âinvesting in technology without checking cash flows is very dangerous.â Which is absolutely true. But in this case, the Brightline folks had very much done a lot of homework on the prospective cash flows from their investments.
Whether they would have succeed or failed in a non-Covid timeline is unknowable. But in this timeline, they had a Black Swan event that destroyed one of the pillars of their business model. They had reached agreements with The Mouse for a station to be located on Disney property, which would have been an enormous pull for ridership for the Orlando leg. One-stop connection straight into the Disney transportation network and a tie into their hotel system for baggage delivery was to have been a significant selling point for the Miami-Orlando route.
But the pandemic changed all that. After seeing what happened coming out of the pandemic, Disney changed their strategy on the parks:
The Empty Park Paradox: Why Disney is Making Record Billions While Families Stay Home
âŚand abrogated their deal with Brightline. Instead of the train taking riders straight into Disney property, it continues to just take them to the Orlando Airport - about 30 minutes away from the parks. Instead of Disney integrating Brightline into their transportation network and - most crucially - marketing and trip planning, Disney isnât involved with Brightline at all (except at the most superficial level).
Itâs not really an example of a business not checking cash flows - itâs an example of how Black Swan events like the global pandemic can wreak havoc on long-term plans, sometimes in unexpected ways.
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Preach, brother.
I mean you.
ELI5
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They are probably already in discussions with their lenders. Much depends on what the lenders think gives them the best return. If they come to terms perhaps the bankruptcy judge will agree. No doubt the lenders have the numbers and are looking into a list of choices.
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I have to say, it doesnât look great:
The train service operating loss totaled $127 million last year, an improvement from the $153 million operating loss a year earlier. The companyâs total loss, made worse by interest payments, was $233 million. While that is only half what it lost a year earlier, Brightline also had less cash on hand. Its total cash position at the end of last year was $139 million, a 52% decline from a year earlier. Much of that cash was earmarked for bond interest payments.
So, sure, part of the reason theyâre losing so much money is due to interest payments - and those can be cleared out in bankruptcy as the creditors wipe out the equity owners. But the high operating losses arenât likely to get solved in a restructuring.
This might have failed no matter what, given the many reasons why passenger rail doesnât make sense in the U.S. Doubly so if one of the cities in your city-pair is Miami. But once they lost Disney as an anchor on one end, the obstacles became insurmountable.
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Itâs an awful form of speech best avoided.
Does that mean that because Black Swans might happen everything else is moot? Black Swans are powerful weapons in pessimistsâ arsenals!
The Captain
No. But it does mean that when a Black Swan happens, there might be business failures that are caused by that Black Swan and not by a failure on the part of the business to look at their cash flows before investing in technology.
Again, Brightline had an agreement with Disney to put a station on Disney property - a massively important pillar of their business:
âŚwhich they had been negotiating for quite some time even before that deal was announced. But then once Disneyâs business model changed after the pandemic, they backed out of the deal. Leaving Brightline with their Orlando station out at the airport, at the complete opposite side of town (OIA is on the east side of Orlando, while the major theme parks are on the west side). Instead of having a Disney station.
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Since by definition Black Swans are unpredictable how do you include them into your investing paradigm? It canât be stock by stock. It has to be individual, investor by investor.
Does the Brightline - Disney breakup invalidate my assertion that one should look at cash flow?
The Captain
You donât. That wasnât my point. Itâs not that you can or should predict things that are inherently unpredictable - rather, than when a business fails for reasons that are attributable to an unpredictable event, we canât necessarily infer that there was a failure to look at cash flows.
No - but it calls into question the inference that the investors didnât look at cash flow. Or were you not suggesting that?
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Who did that inferring? I certainly did not!
Of course not!
The Captain
Fair enough. I must have completely missed your point.
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Shift happens! 
The Captain