Distressed hedge funds buy $190m of Brightline debt from Nuveen

Three distressed-debt hedge funds, Diameter Capital Partners, Redwood Capital, and FourSixThree Capital, have purchased approximately $190 million of municipal bonds issued by Brightline, a bankrupt Florida rail operator, according to a Bloomberg report citing unnamed sources. The three funds acquired the bonds from Nuveen, the asset manager, after Nuveen offered the entire position in Brightline's senior unsecured municipal debt for sale following Brightline's filing for Chapter 11 bankruptcy.

The transaction was conducted through a competitive bidding process and was structured on an all-or-nothing basis, with the bonds changing hands at around 45 cents on the dollar, according to sources familiar with the deal. The hedge funds found the price to be low, as some of the securities had previously traded at about 20 cents higher.

The bonds subsequently rebounded, trading at around 55 cents on Wednesday, according to market data. Nuveen and representatives for Diameter and FourSixThree declined to comment on the trading activity. Redwood reportedly did not respond to requests for comment. The sale occurred unusually quickly for the municipal bond market, given its size and timing shortly after Brightline's bankruptcy filing.

Meanwhile, creditors holding roughly $1 billion of Brightline debt that had initially remained outside the restructuring have agreed to Brightline's restructuring support agreement, which now has support from creditors representing approximately $4.6 billion of the company's $5.5 billion in total debt. The restructuring plan also provides Brightline with $258 million in bankruptcy financing from Assured and other municipal investors, and a further $490 million of debt financing has been committed following the company's emergence from Chapter 11.