Florida East Coast Railroad - For Sale

[spuwho]

Per Trains via Bloomberg:

http://trn.trains.com/news/news-wire/2016/10/14-fec-sale

Report: Florida East Coast for sale

Unclear what impact a sale would have on Brightline passenger project

Florida East Coast Railway’s owner is getting ready to put the regional up for sale, according to a Bloomberg News report.

Fortress Investment Group, which purchased the FEC for $3.5 billion in June 2007, has hired investment banking firms Barclays and Morgan Stanley to advise on a potential sale, Bloomberg reported, citing unnamed sources said to be familiar with the matter.

Representatives from Fortress and FEC did not immediately respond to Trains News Wire’s messages seeking comment on Thursday afternoon.

It is unclear what impact, if any, a potential sale would have on All Aboard Florida’s Brightline passenger project. All Aboard Florida, another Fortress subsidiary, was created to develop a privately funded and operated passenger service that will use FEC tracks between Miami and Cocoa, Fla., and to Orlando via a proposed new route.

After purchasing Florida East Coast Industries in 2007, Fortress split the company into two: the railway and Flagler, one of the Sunshine State’s largest commercial real estate developers.

The railway is valued at $850 million, according to the Fortress website, while Flagler’s value is pegged at $3.1 billion.

[spuwho]

They seem to be in a selling mood these days:

FECI South Florida Logistics Center is sold.

Per South Florida Biz Journal via The Real Deal:

Industrial property near Miami airport sells for $209M



Florida East Coast Industries (FECI) sold South Florida Logistics Center, a 200-acre industrial development near Miami International Airport, for $209 million.

The property includes five industrial buildings with a total of 867,343 square feet. The five buildings, including one that Amazon.com leases, have been completed since 2013. They range in size from 112,562 square feet to 274,844 square feet. In addition to Amazon, the tenants include Flying Food Group, Goodyear and Seafrigo.

FECI and its subsidiary Flagler Global Logistics sold the property to an entity of J.P. Morgan Asset Management, which manages pension funds.

The South Florida Business Journal also reported that FECI agreed in writing with J.P. Morgan Asset Management to sell additional buildings at South Florida Logistics Center when they are completed.

FECI began construction of a sixth industrial building at South Florida Logistics Center measuring 162,088 square feet in August, and the company plans to construct three more buildings at the 200-acre development, located at 3200 Northwest 67 Avenue in Miami.

FECI and its All Aboard Florida subsidiary are developing the Brightline passenger train service between Miami, Fort Lauderdale and West Palm Beach, which is expected to start operating next year.

[spuwho]

Wall Street handicappers are putting the odds that Norfolk Southern will be the lead candidate to bid for the FEC. Genesee and Wyoming and CSX are considered suitors, but because FEC has exclusive access to several container ports, many think CSX wouldnt get the approvals.

[spuwho]

Got an interesting message on this. This is completely unverified, so grain of salt in effect.

The sales of these large FECI assets is how they are going to "finance" the completion the AAF route from West Palm to Orlando.

Pay off the PIK's used to build the first segment. Raise cash to pay for the Orlando leg so no need to sell PAB's or get a RRIF deal from the FRA.

Selling off the freight hauling provides a faux firewall for the NIMBYs in Martin County who still think its a big freight expansion conspiracy.  Fortress gets to keep the real jewel in the deal, Flagler Development who will go after the TOD and other commercial development along the entire service route. The other FECI arm, Parallel Infrastucture will stay seperate and continue to market wireless and fiber capacity on the route (and support connectivity in Brightline)

This was triggered by the ruling by the circuit court judge that he would proceed with the case because AAF couldnt identify any alternate financing.

If I was FECI, I would sell the railway to G&W with an excellent claw back clause after say 10 or 15 years, right about the time Brightline hits its stride and the NIMBY's have exhausted their conspiracy laden protests.

This would turn the FEC into a pure haulage and track maintenence operation. Interesting.

[thelakelander]

^What's your thoughts on how this would potentially impact a future extension to Jacksonville?

[acme54321]

Seems odd.  How will they maintain perpetual accessibility to the FEC tracks for Brightline if they sell them?

[thelakelander]

^Pre-existing agreements that give them the right to operate passenger rail service on the corridor.

[acme54321]

True, I guess since they are already separate companies those agreements are probably already in place.  They'd just have to find a way to make them permanent.  Still seems like they would be giving up a lot of control.

[thelakelander]

Could be good or bad. The devil would be in the details.

[spuwho]

^What's your thoughts on how this would potentially impact a future extension to Jacksonville?

No impact.  If you recall, they registered that AAF Jax Segment a couple of years ago.  Flagler would still do any/all surrounding real estate.

If the FEC is sold, these various AAF legal entities would simply continue to pay "rent" to use the ROW. 

The Cocoa-MCO segment will be wholly owned by AAF and will not be part of the sale (I assume), so they could charge rent to the new FEC owner to haul freight back and forth. Last time I read the lease agreement with OOCEA, there was some language to that effect.

I am not an insider at FECI or Fortress, so all of this could be completely wrong, but the fact that they are having financing problems in getting the bonds sold, and a potential legal delay in getting the PAB's authorized, and since they have made a significant amount of PR and the dates with travel firms in Europe, its not considered abnormal for a firm to sell assets to raise cash.  AAF said any PAB's brokered at anything above 8% is not worth it to them. 

If the debt markets don't agree with their biz plan, and they still want to proceed, then they have to finance the effort internally. And obviously they feel the rate of return by using cash instead of bonds is better if the bond rates go above 8%.

It's very interesting because 3 years ago many rail experts up north said the AAF thing was just a prelude to selling the railroad off.  No one believed it, especially after FECI spent all that money replacing their fleet of engines and investing in their Hialeah logistics center.   While I assumed that setting up AAF as all of these unique legal entities was just good business practices, it seemed others saw the legal setup as a way for them to exist without actually owning the infrastructure.

I won't delve into the benefits of their entities and LLC's as they are numerous.

I spoke with several non-involved CSX people and they are all very aware of the sale, but don't think the regulators would allow CSX to own it, at least not without giving up some major assets elsewhere in Florida.  CSX percentage of rail in Florida is already fairly high, and personally, I don't think CSX wants to deal with any stipulations for passenger rail. Amtrak is already a PITA for all the carriers as it is.

Norfolk Southern is already a FEC partner in freight handling through their Atlanta gateway for express to the Port of Miami, so they have the most to gain through an ownership. They have shown a less restrictive behavior about passenger rail in their territories, but have just come out of that crazy CP Rail merger attempt. Their board may not be ready to jump so quick.

The most likely (in my mind) is Genesee & Wyoming.  They already run several shortlines under their umbrella and are structured like AAF is, with these micro legal entities that support these railroads they have.  This would keep the FEC route a stictly "in state" entity

[Ocklawaha]

I'm with you on the; 'they don't think the regulators would allow CSX to own it.' Except  that after approving the UP-SP merger it's going to be hard for regulators to try and keep CSX from owning Florida any more than they kept UP from owning entire regions of the country.

[spuwho]

I'm with you on the; 'they don't think the regulators would allow CSX to own it.' Except  that after approving the UP-SP merger it's going to be hard for regulators to try and keep CSX from owning Florida any more than they kept UP from owning entire regions of the country.

UP/SP was interesting because while SP was run into the ground by Anschutz, SP owned a lot of land, land that had mineral rights. The asset that SP brought to UP and one thing that Anschutz did well, was the dark fiber he had laid end to end on SP using new rail based laying tech.

Now UP and BNSF have agreed to JV on any ROW where the STB feels there is inadequate competition or constraint on commerce. UP ended up spinng off or tearing up alot of SP and WP rail post merger.

As far CSX and FEC go, I would see something similar where if CSX was serious about the FEC, rhey would have to grant rights to NS to some port south of Jax, (either Tampa or Miami). I just think CSX doesnt need it. They already have access to 3 major Florida ports today, only 1 that FEC doesnt service. (TAmpa)

FEC is so unique. Its not a Class 1, but operates like one. Its not a short line because it needs large power to move containers, but its not a regional road, as it never leaves the state of Florida.

Fortress found out quickly that Rail America couldnt handle it very well, so they spun it back. Maybe its G&W turn.

[Ocklawaha]

Hopefully they will not paint the whole road puke orange.

[SightseerLounge]

^What's your thoughts on how this would potentially impact a future extension to Jacksonville?

No impact.  If you recall, they registered that AAF Jax Segment a couple of years ago.  Flagler would still do any/all surrounding real estate.

If the FEC is sold, these various AAF legal entities would simply continue to pay "rent" to use the ROW. 

The Cocoa-MCO segment will be wholly owned by AAF and will not be part of the sale (I assume), so they could charge rent to the new FEC owner to haul freight back and forth. Last time I read the lease agreement with OOCEA, there was some language to that effect.

I am not an insider at FECI or Fortress, so all of this could be completely wrong, but the fact that they are having financing problems in getting the bonds sold, and a potential legal delay in getting the PAB's authorized, and since they have made a significant amount of PR and the dates with travel firms in Europe, its not considered abnormal for a firm to sell assets to raise cash.  AAF said any PAB's brokered at anything above 8% is not worth it to them. 

If the debt markets don't agree with their biz plan, and they still want to proceed, then they have to finance the effort internally. And obviously they feel the rate of return by using cash instead of bonds is better if the bond rates go above 8%.

It's very interesting because 3 years ago many rail experts up north said the AAF thing was just a prelude to selling the railroad off.  No one believed it, especially after FECI spent all that money replacing their fleet of engines and investing in their Hialeah logistics center.   While I assumed that setting up AAF as all of these unique legal entities was just good business practices, it seemed others saw the legal setup as a way for them to exist without actually owning the infrastructure.

I won't delve into the benefits of their entities and LLC's as they are numerous.

I spoke with several non-involved CSX people and they are all very aware of the sale, but don't think the regulators would allow CSX to own it, at least not without giving up some major assets elsewhere in Florida.  CSX percentage of rail in Florida is already fairly high, and personally, I don't think CSX wants to deal with any stipulations for passenger rail. Amtrak is already a PITA for all the carriers as it is.

Norfolk Southern is already a FEC partner in freight handling through their Atlanta gateway for express to the Port of Miami, so they have the most to gain through an ownership. They have shown a less restrictive behavior about passenger rail in their territories, but have just come out of that crazy CP Rail merger attempt. Their board may not be ready to jump so quick.

The most likely (in my mind) is Genesee & Wyoming.  They already run several shortlines under their umbrella and are structured like AAF is, with these micro legal entities that support these railroads they have.  This would keep the FEC route a stictly "in state" entity

So, the passenger trains did what they used to do: Advertise the railroad!

This time, they're being used to sell the railroad!

I would think that the Norfolk Southern would hop all over this!

[spuwho]

^What's your thoughts on how this would potentially impact a future extension to Jacksonville?

No impact.  If you recall, they registered that AAF Jax Segment a couple of years ago.  Flagler would still do any/all surrounding real estate.

If the FEC is sold, these various AAF legal entities would simply continue to pay "rent" to use the ROW. 

The Cocoa-MCO segment will be wholly owned by AAF and will not be part of the sale (I assume), so they could charge rent to the new FEC owner to haul freight back and forth. Last time I read the lease agreement with OOCEA, there was some language to that effect.

I am not an insider at FECI or Fortress, so all of this could be completely wrong, but the fact that they are having financing problems in getting the bonds sold, and a potential legal delay in getting the PAB's authorized, and since they have made a significant amount of PR and the dates with travel firms in Europe, its not considered abnormal for a firm to sell assets to raise cash.  AAF said any PAB's brokered at anything above 8% is not worth it to them. 

If the debt markets don't agree with their biz plan, and they still want to proceed, then they have to finance the effort internally. And obviously they feel the rate of return by using cash instead of bonds is better if the bond rates go above 8%.

It's very interesting because 3 years ago many rail experts up north said the AAF thing was just a prelude to selling the railroad off.  No one believed it, especially after FECI spent all that money replacing their fleet of engines and investing in their Hialeah logistics center.   While I assumed that setting up AAF as all of these unique legal entities was just good business practices, it seemed others saw the legal setup as a way for them to exist without actually owning the infrastructure.

I won't delve into the benefits of their entities and LLC's as they are numerous.

I spoke with several non-involved CSX people and they are all very aware of the sale, but don't think the regulators would allow CSX to own it, at least not without giving up some major assets elsewhere in Florida.  CSX percentage of rail in Florida is already fairly high, and personally, I don't think CSX wants to deal with any stipulations for passenger rail. Amtrak is already a PITA for all the carriers as it is.

Norfolk Southern is already a FEC partner in freight handling through their Atlanta gateway for express to the Port of Miami, so they have the most to gain through an ownership. They have shown a less restrictive behavior about passenger rail in their territories, but have just come out of that crazy CP Rail merger attempt. Their board may not be ready to jump so quick.

The most likely (in my mind) is Genesee & Wyoming.  They already run several shortlines under their umbrella and are structured like AAF is, with these micro legal entities that support these railroads they have.  This would keep the FEC route a stictly "in state" entity

So, the passenger trains did what they used to do: Advertise the railroad!

This time, they're being used to sell the railroad!

I would think that the Norfolk Southern would hop all over this!

According to noted train columnist, Fred Frailey, the 3 parties making a push are hedge funds/financial entities, not railroads.

This has led people to believe that Fortress is working on a "pay day loan" or pawning the FEC in order to raise cash to pay for Brightline.

So by selling it to a financial entity, who considers it an financial asset like any other, FECI can take the cash, finish Brightline, and when bond markets settle down, buy back the FEC by using bonds at a rate cheaper than AAF can get on the PAB's.