Trump Fight Over California Train Stalls Virgin Muni-Bond Plans

(Bloomberg) -- Virgin Trains USA’s plan to finance the contruction of a high-speed railroad to Las Vegas with billions of dollars of tax-exempt bonds sold through a California agency is being stalled by doubts about whether President Donald Trump’s administration will approve the project.

California Treasurer Fiona Ma said in an interview that she won’t put the proposed bond sale on the agenda for the state debt committee’s next meeting in April unless she sees a letter affirming the federal government will allow it. Virgin Trains, which is backed by Fortress Investment Group’s private equity funds, had argued that investors would buy the bonds anyway with the federal environmental approval pending.

Ma is imposing the condition because of Trump criticism of the California government’s plan to build its own high-speed train from San Francisco to Los Angeles, which subsequently lost federal grants. “We don’t have a lot of confidence in the federal government at this moment unless we get something in writing,” Ma said.

Ben Porritt, a Virgin Trains spokesman, said company officials are continuing to talk with state and federal authorities and they “appreciate the support for our project.”

Virgin Trains is requesting $600 million, or about 15%, of the so-called private activity bonds that California is authorized to give out under federal law this year. Such bonds are also sold on behalf of businesses like housing developers, who had pushed to have all of the securities granted to affordable-home projects to help ameliorate California’s growing homelessness epidemic.

The train venture had received $300 million of its request last year, contingent on a final vote from the state’s debt committee this year. But with the lack of clarity from the federal government, the board this month approved giving that allocation to housing projects instead.

It’s unclear if Virgin Trains will get a letter from the federal government by the April meeting. Representatives of the Federal Railroad Administration didn’t immediately provide a response to a request for comment. The day of the company’s last appearance before California in January, the agency said in a letter that it’s “continuing to analyze whether the current project modifications trigger the need for additional environmental review.”

The train to Las Vegas had received federal approval under different ownership. In the works for more than a decade, the project also has support from Ma, who said it would boost communities by the Mojave Desert. The line is to begin in Apple Valley, 90 miles (145 kilometers) northeast of Los Angeles.

By getting $600 million of California’s allocation for private activity bonds, the company can leverage that four times to $2.4 billion because of federal rules that increase the subsidies available to railroads. The tax-exempt financing plans total $4.2 billion for the $4.8 billion project. Virgin Trains would be on the hook for debt payments, not the government agencies selling the bonds.

Ma said there is no plan yet on what to do with $600 million of the state’s private activity bond capacity anticipated to go to the rail should the company fail to secure federal confirmation.

©2020 Bloomberg L.P.

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