High-speed passenger rail system Brightline’s mid-July decision to defer interest payments on a portion of its debt sent a ripple effect through the high-yield municipal-bond market. Since then, the largest owners of the debt have suffered steep losses.
The episode has been another bump in what has been a rocky year for municipal-bond funds and shows that an asset class often regarded as sleepy can sometimes jolt investors awake.
Brightline’s Background
Brightline Florida, a significant issuer in the high-yield muni market, has evolved since first launching a private passenger US rail service in 2018. Most notably, it launched a 235-mile connecting route between Miami and Orlando in 2023. While the company aspires to extend its services to Tampa, its debt-management challenges have dominated recent headlines. Lower-than-anticipated ridership and revenue have been headwinds.
In 2024, Brightline restructured USD 4.5 billion of its debt into three buckets, more than USD 2 billion of which came out as tax-exempt bonds rated investment-grade. Though the deal was initially met with investor enthusiasm, multiple portions of the debt package experienced credit-rating downgrades in May 2025, including the entity’s USD 2.2-billion senior-secured tax-exempt bonds, which were downgraded to junk status. About 50% of these bonds are insured by Assured Guaranty, which guarantees timely payments to debtors in the event of default, while the balance remains uninsured.
Brightline Florida announced on July 11, 2025, it would defer interest payments on USD 1.2 billion in nonrated, subordinated tax-exempt debt. The missed interest payment doesn’t qualify as a default, according to the bonds’ documents. Still, these bonds’ prices—and many others not directly affected, influenced, damaged, or hurt by Brightline’s decision to defer the mid-July payment—have tumbled on the news.
Which Funds Own the Most Brightline Debt?
Below are the 10 funds with the largest helpings of Brightline debt based on the most recently available national municipal-bond portfolios submitted to Morningstar as of June 30, 2025. The figures also include debt allocations to the so-called Brightline West project, a West Coast rail network connecting Las Vegas, Nevada, to Southern California. In March 2025, Brightline West sold USD 2.5 billion of nonrated, tax-exempt debt to investors.
All but one of the largest holders of Brightline debt—Macquarie Tax-Free USA Intermediate—were in the high-yield muni Morningstar Category.
Two First Eagle strategies top the list, though a number of municipal-bond managers own relatively large helpings of the debt, which is also featured in several high-yield muni indexes.
Recent Performance Woes
Funds with big Brightline stakes also have been among the worst-performing funds in the high-yield muni Morningstar Category since Brightline said it would defer its July mid-month interest payment. That’s too short of a time period by which to judge a strategy, but it does highlight risks some of these funds have taken by concentrating on the debt supporting these projects.
Indeed, First Eagle High Yield Municipal’s FEHIX near-4% loss through July 28, 2025, was more than 3 times worse than its distinct median high-yield muni Morningstar Category peer’s 1.21% loss.
The fund is still up 3.05% annualized and beating 80% of its peers since the February 2024 start of lead manager John Miller’s tenure through July 28, 2025.
If nothing else, recent events show that municipal-bond investing isn’t always a snooze.