Municipal Credit’s Greatest Hits of 2025: Brightline; Healthcare Issues; Chicago Budget Woes; PREPA’s Title III Case Enters 9th Year

Welcome back to our annual year-end wrap for Octus’ municipal coverage! In no particular order, here are 10 of our most influential and otherwise favorite scoops, data and legal intelligence from 2025.

Brightline Dimmed

The Story: Express intercity passenger rail system Brightline Florida, which is privately owned by Fortress Investment Group, faces a potential liquidity crunch in light of slower-than-projected ticket revenue growth and litigation on several fronts. Octus’ analysis, which preceded a five-notch December downgrade of two Brightline Florida entities by S&P Global Ratings, reviewed the $5.5 billion capital structure, its current dependence on a single operating entity and the company’s reliance on external funding to sustain and expand operations during the system’s ramp-up period.

A Bird’s-Eye View: Brightline Florida and Brightline West, which is developing a rail line to connect Las Vegas and Southern California, have executed a series of bond remarketings and exchanges and are seeking additional funding as they attempt to ramp up operations and construction. The bond transactions have come with new collateral, equity commitment and reporting requirements. Brightline Florida is also the target of litigation concerning its planned commuter rail expansion and said it would use debt service reserve funds for a Jan. 1 interest payment.

Insufficient Funds

The Story: The One Big Beautiful Bill Act, or OBBBA, which was enacted in July, contains provisions that are expected to reduce federal Medicaid funding by over $1 trillion through 2034, according to an estimate by the Congressional Budget Office. Octus’ financial, legal and journalism trifecta gave our subscribers an overview of the law, its implementation and how it may imperil healthcare providers nationwide in the absence of new funding measures. We also hosted a webinar discussing the law in depth in September – the replay is available HERE.

A Bird’s-Eye View: The law is expected to have knock-on effects on healthcare systems nationwide, including urban, suburban and rural hospitals and senior living facilities that rely heavily on Medicaid reimbursements.

Chicago’s Budget Blues

The Story: As 2025 opened, Chicago received a triple rating downgrade by the three main credit ratings agencies after a particularly messy battle to approve a fiscal year 2025 budget, a particularly contentious process between City Hall and City Council that was only outdone by the recently concluded FY 2026 budget process that closed out the year. The City Council rejected the mayor’s proposed corporate head tax to address a $1 billion budget deficit and instead crafted its own spending plan that relies on monetizing outstanding debt, squeezing more savings from operations and borrowing nearly $450 million for FY 2026 obligations. Credit agencies cited the city’s use of one-time revenue sources in downgrading Chicago’s rating,

A Bird’s-Eye View: Chicago’s reliance on one-time proceeds increased to 40% in the FY 2026 budget from 32% in the FY 2025 spending plan, which has city fiscal watchers bracing for another downgrade.

Eight Years (and Six Months) Later

The Story: President Donald Trump’s attempted removal of six of the PROMESA oversight board’s seven members kicked off a near reset of the Puerto Rico Electric Power Authority, or PREPA, Title III debt restructuring that included the defection of a large plan-supporting bondholder group, which subsequently joined the existing cooperation agreement with nonsettling bondholder parties. Bondholder alliances have shifted throughout the case, which has entered its ninth year.

Octus reviewed the lay of the land in August, and since that time, a federal district court enjoined the removal of three of the oversight board’s members in a ruling the federal government has appealed, the bondholders have said the cooperation agreement covers over 90% of PREPA’s outstanding bonds, and the bondholders and the oversight board have remained mired in litigation regarding the bondholders’ $3.7 billion administrative expense request. The oversight board maintains that PREPA’s most recently proposed Title III plan of adjustment remains confirmable.

A Bird’s-Eye View: PREPA’s Title III case remains unresolved as the rate-setting case before the Puerto Rico Energy Bureau reaches its briefing phase and grid operator Luma Energy faces commonwealth government challenges to its November 2022 contract extension to operate the PREPA transmission and distribution system.

Your Funding Is Fired (Maybe)

The Story: Municipal bond issuers across the country – from California to Illinois to New Jersey to Puerto Rico – have experienced unprecedented fiscal uncertainty driven by policy changes and proposed federal program funding clawbacks by Trump’s administration, which have also affected billions of dollars of private investment in wind and solar projects. The administration actions have affected state and city budgets, California’s high-speed rail project, East Coast offshore wind projects, university research grants and large transit projects in the New York and Chicago areas. The increased federal funding uncertainty comes as issuers need to address budget gaps caused, in part, by the expiration of one-time pandemic relief funding.

A Bird’s-Eye View: Municipal issuers approved FY 2026 budgets with funding contingencies and have discussed potential midyear spending plan revisions to address the increased uncertainty in important federal funding programs. In the meantime, litigation is playing out across the country as municipal borrowers, including state and local governments, challenge the administration’s attempts to claw back previously awarded federal funding.

Stand by Your Project

The Story: The Aleon Metals debtors sold their petroleum catalyst and battery recycling facilities in Freeport, Texas, to an affiliate of bondholders who provided DIP financing in the debtors’ chapter 11 cases and subsequently credit-bid the DIP obligations (which included $62.5 million of new money and a $125 million rollup of senior prepetition bond obligations). The deal was emblematic of recent bondholder approaches to distressed green bond and recycling projects, in which lenders have sought to take control of debtors or their assets rather than allow their collateral to be sold to a third party.

Bondholders achieved a similar result in the GO Lab cases, in which participating bondholders received new common stock in the Maine-based wood fiber insulation producer under a consensual plan of reorganization. However, a bondholder credit bid attempt was thwarted in the Brightmark Plastics Renewal cases when the bankruptcy court approved a competing bid by the debtors’ nondebtor parent that included a cash component.

A Bird’s Eye View: Bondholder efforts to obtain control of green projects through credit bids, consensual reorganizations or other means could provide a roadmap for bondholders of other distressed projects.

Chapter 20

The Story: The Jackson Hospital & Clinic debtors proposed to substantively consolidate their bankruptcy estates with nondebtor Medical Clinic Board of the City of Montgomery, Ala., or MCB, a “public agency and instrumentality of the State of Alabama” that owns the majority of the real estate used by Jackson Hospital. The request raised questions about the interplay between chapter 9 and chapter 11 of the Bankruptcy Code – including whether a state instrumentality can be consolidated into a corporate bankruptcy estate – that remain unanswered, as the debtors’ motion was denied on procedural grounds.

A Bird’s-Eye View: The Jackson Hospital & Clinic debtors say they require MCB’s assets in order to reorganize, but the mechanism for doing so remains to be seen. A recently announced agreement in principle among the debtors and their lenders, some of which are also creditors of MCB, could provide the answer although the terms of the agreement have not yet been publicly disclosed.

Take Your Pick

The Story: The Lutheran Home and Services for the Aged debtors pursued a “multi-track” bankruptcy process, exploring sale and reorganization options simultaneously. The debtors ultimately abandoned the sale track, which had yielded an $85 million stalking horse bid for a portion of their assets, after entering into a plan support agreement, or PSA, with bond trustee UMB Bank and certain bondholders that provided for the exchange of outstanding bonds for new bonds. The debtors are seeking confirmation of a plan based on the PSA.

A Bird’s-Eye View: The case highlights ongoing stress in the senior living sector and, if successful, would be an example of alternatives to asset sales that often do not yield funds sufficient to satisfy outstanding obligations.

Chart(er)ing a New Path

The Story: Recent stability in capital markets has enabled charter schools to finance their projects, leading to some of the largest deals in the municipal market. The sector, however, continues to face declining student populations and dwindling pandemic relief funds. Despite proposed cuts within the Department of Education, charter schools are set to receive an additional $60 million in funding in FY 2026, bringing the total to $500 million. The largest charter school primary offering in history thus far was worth $490 million, a “deal” come true for the International Leadership of Texas.

A Bird’s-Eye View: Charter schools remain a distressed sector in muniland, but market participants can still take advantage of pockets of opportunity where there is sufficient liquidity, experienced management teams and attractive real estate.

No Longer a Sure Thing?

The Story: A bankruptcy court issued an injunction blocking several student loan servicers and asset-backed securities trusts from collecting on certain student loans that were allegedly discharged in bankruptcy. In granting the injunction, the court concluded that the debtor had raised sufficiently serious questions regarding the discharge of loans that exceeded the cost of her law school attendance or funded post-graduation living expenses while she was studying for the bar exam. The court also concluded that it had authority to enter a nationwide preliminary injunction on behalf of putative class members, even if their bankruptcy discharges were entered in other jurisdictions.

A Bird’s-Eye View: The ruling highlighted student loan repayment risk amid rising delinquencies and defaults, a development with potential implications for the municipal bond market’s student loan asset-backed securities. Although student loans have long been viewed as nearly bankruptcy-proof, discharge success rates have increased in recent years.

And last but not least, some honorable mentions for our databases: Higher Education, Senior Living and California Essential Housing.