FTAI Infrastructure Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
August 8, 2025

Key Takeaways

  • Positive Sentiment: Signed a $1.05 billion acquisition of the Wheeling & Lake Erie Railway to combine with TransStar, targeting $200 million of annual EBITDA by 2026 through $20 million of cost synergies and high-visibility revenue from Repauno and Nippon Steel commitments.
  • Positive Sentiment: Completed a two-pronged refinancing: issuing $1 billion of non-cash-pay preferred at 10 percent with upside warrants at the rail level, and raising $1.25 billion of corporate debt at ~8.25 percent to replace 10.5 percent notes, reducing annual cash fixed charges by $30 million.
  • Positive Sentiment: Delivered 2Q adjusted EBITDA of $45.9 million, up 30 percent year-over-year and 34 percent sequentially, with growth contributions at TransStar, Long Ridge and Jefferson facilities.
  • Positive Sentiment: Progressing Repauno Phase II with $300 million of tax-exempt debt at a 6.5 percent blended rate, under contract and LOI volumes of 71,000 barrels per day for ~$80 million of annual EBITDA, on track for late-2026 startup.
  • Positive Sentiment: Advancing multiple growth initiatives including Long Ridge’s West Virginia gas sales and data center discussions, plus Repauno Phase III cavern permitting expected by September for a $200 million build that could generate ~$100 million of EBITDA.
AI Generated. May Contain Errors.
Earnings Conference Call
FTAI Infrastructure Q2 2025
00:00 / 00:00

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Operator

Good day, and welcome to the Second Quarter twenty twenty five EFTA Infrastructure Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded.

Operator

I would now like to turn the call over to Alan Andrini, Investor Relations. Please go ahead.

Alan Andreini
Alan Andreini
Head - Investor Relations at FTAI Infrastructure

Thank you, Michelle. I would like to welcome you all to the Eftai Infrastructure earnings call for the 2025. Joining me here today are Ken Nicholson, the CEO of Eftai Infrastructure and Buck Fletcher, the company's CFO. We have posted an investor presentation and our press release on our website, which we encourage you to download if you have not already done so. Also, please note that this call is open to the public in listen only mode and is being webcast.

Alan Andreini
Alan Andreini
Head - Investor Relations at FTAI Infrastructure

In addition, we will be discussing some non GAAP financial measures during the call today, including adjusted EBITDA. The reconciliations of those measures to the most directly comparable GAAP measures can be found in the earnings supplement. Before I turn the call over to Ken, I would like to point out that certain statements made today will be forward looking statements, including regarding future earnings. These statements, by their nature, are uncertain and may differ materially from actual results. We encourage you to review the disclaimers in our press release and investor presentation regarding non GAAP financial measures and forward looking statements and to review the risk factors contained in our quarterly report filed with the SEC.

Alan Andreini
Alan Andreini
Head - Investor Relations at FTAI Infrastructure

Now, I would like to turn the call over to Ken.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Okay. Thank you, Alan, and good morning, everyone. Welcome to our earnings call for the 2025. We're going to walk through the details for the quarter as we typically do, but first and foremost, we want to get into the details of two important developments for our company. Just two days ago, we announced a major acquisition that we expect to transform our freight rail segment.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

In addition, we plan to refinance our corporate balance sheet in a manner that materially increases our free cash flow and provides ample flexibility for future growth. These two transactions tee us up for what we expect to be a dynamic second half of twenty twenty five and multiple opportunities for long term growth in the years ahead. For the call today, we'll be referring to the earnings supplement, which you can find posted on our website, and I'm going to kick things off on page three of the supplement with some details on the acquisition. We signed an agreement earlier this week to acquire the Wheeling and Lake Erie Railway, one of the largest regional freight railroads in The U. For total cash consideration of $1,050,000,000 In the freight rail sector, the Wheeling and Lake Erie has been a highly sought after asset given its strategic location, customer diversity and growth potential, we are thrilled to have had the opportunity to negotiate a transaction and combine it with our TransStar business.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

The Wheeling operates roughly 1,000 miles of track in the states of Ohio, Pennsylvania, West Virginia and Maryland. The Wheeling is a great fit for a combination with TransStar. The map on the left side of slide three says it all. The geographic overlay of the two businesses allows us to realize multiple immediate efficiencies and capitalize on a number of growth opportunities. For the latest twelve months, The Wheeling generated total revenue of approximately $150,000,000 serving a diverse base of over two fifty customers and a broad range of commodities.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

On slide four, we'll walk through our integration plan and our financial expectations for our combined Rail platform. We expect to consummate the acquisition quickly and are preparing for closing later in this month of August. We'll close initially into a voting trust while we await formal approval for active control from the Surface Transportation Board. Closing transactions like this into an interim voting trust is relatively common in the freight rail sector, and it's something we at Fortress have done a number of times since it allows us to immediately execute on the transaction and benefit from the revenue and cash flow that the Wheeling generates while allowing time for the mandated regulatory process to be completed. We currently expect regulatory approval around the 2025.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

While the Wheeling is held in a voting trust, we have asked John Giles, the former CEO of Rail America, to act as trustee on our behalf. John is an incredibly seasoned freight rail industry executive. He helped us grow Rail America during our ownership, more than doubling the EBITDA of Rail America over our four years of ownership. We do expect this to be a highly accretive investment and we're targeting annual EBITDA of the combined rail companies of at least $200,000,000 by the 2026. The building blocks to that target are provided in the bar chart, and I'll walk through the pieces.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

For the most recent second quarter, the two companies generated combined annual EBITDA as is of $150,000,000 with $83,000,000 attributable to TransStar and $63,000,000 to The Wheeling. We expect $20,000,000 of annual cost savings to be implemented in the near term at the Wheeling with the bulk related to network efficiencies, including quicker transit times, optimized use of assets, as well as capitalizing on purchasing power and a variety of cost savings. Our $20,000,000 target is comprised of a detailed line item based work plan that John Karnes, current CEO of TransStar, will implement together with Wheeling's senior management team. We expect the entirety of these savings to be implemented in the next twelve months. The next two components relate to high confidence revenue opportunities.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

The first is a unique opportunity related to our Repauno terminal. Our Phase II project at Repauno will handle large volumes of natural gas liquids for export. Those liquids include propane and butane being sourced from fractionators located directly on the Wheeling's rail system. Starting late next year, unit train each day will be loaded representing 80 carloads daily or about 30,000 carloads annually. At current market rates per carload, that represents $20,000,000 of annual EBITDA at the Wheeling.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Recall that those volumes are contracted at Repauno for a total of five years, so we have high visibility into that revenue stream. The second revenue opportunity is at Transstar, where additional freight volumes into and out of U. S. Steel's facilities will be substantial as a result of the commitments made by Nippon Steel. Nippon has committed to invest a total of $5,000,000,000 to expand production specifically at U.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

S. Steel's Pittsburgh and Gary, Indiana facilities. We expect these investments to result in 10% to 20% increases in shipments or approximately $15,000,000 of annual EBITDA. Nippon is also committed to building new production facility, which may be located on one of TransStar's existing rail lines. If that transpires, we expect substantial additional EBITDA not included in this bar chart.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

The bar chart also excludes continued pricing gains, third party revenue growth at Transtar and a pipeline of new business opportunities at the Wheeling. Given the diversity and growth profile of the combined business, we believe we now own a rail asset that could trade at industry multiples that historically have averaged 15 times EBITDA. With at least $200,000,000 of targeted annual EBITDA, after deducting $1,000,000,000 of preferred stock at the rail level that I'm going to discuss shortly, that implies significant value creation that ultimately flows to our common shareholders. I'm now going to shift to the financing that we are closing together with the acquisition. The financing has two components.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

First, we're issuing preferred stock at a newly formed subsidiary that will own the combined TranStar and Wheeling assets. Total preferred issuance is $1,000,000,000 with proceeds used to fund the bulk of the acquisition purchase price. The preferred is being purchased by affiliates of Ares management and will carry a 10 annual dividend rate, which will be non cash paying, meaning all the cash flow generated by our combined rail business will be available at our corporate holding company level. The preferred will also receive warrants at the rail company that allow the investor to participate at a strike price at our investment basis in the value that we create over time. The warrants are only being issued at the rail entity and not at our publicly traded parent, so there is no dilution to our publicly traded equity.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Secondly, at the corporate level, are issuing 1,250,000,000 of new debt to refinance our existing 10.5% senior notes and our existing Series A preferred stock and fund working capital. The new debt will carry an interest rate of S plus 400 or roughly 8.25% annually, having a positive impact on our leverage and cash flow position. Cash fixed charges today at FIP of just over 130,000,000 annually will drop by $30,000,000 to just over $100,000,000 annually going forward. Cash generated by our Rail business and distributed up to FIP will more than double on a pro form a basis for the acquisition, so coverage ratios and excess cash generation will be materially higher going forward. The $1,250,000,000 in corporate debt is initially being funded in the form of a short term bank loan, which we plan to refinance during the fall this year with a new long term bond issuance.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

We expect the terms of the new bonds to be less restrictive than our existing debt, providing flexibility and access to additional debt in the future to continue to invest in accretive opportunities. Now on to our current business. On the quarter, adjusted EBITDA was $45,900,000 for 2Q, up 30% from the 2025 and up 34% from the second quarter of last year. Sequential EBITDA grew at each of TransStar, Long Ridge and Jefferson. A Repondo, the second quarter continues to reflect only Phase one operations, while we progress construction at our highly accretive and contracted Phase two transloading system.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

With contracted business commencing during the remainder of this year and the Wheeling acquisition, we expect 2025 to be transformational for our company, demonstrating substantial growth in revenues and EBITDA. As the bar chart on the right side of the slide illustrates, we have a line of sight across our portfolio on just over $350,000,000 of annual EBITDA before the impact of the acquisition. Including the acquisition, we expect annual EBITDA to exceed $450,000,000 Importantly, our targets exclude a number of growth opportunities, including additional volumes at Transstar, data center developments at Long Ridge and Repauno's Phase III terminal project. Touching upon the key highlights at each of our companies, at Transstar adjusted EBITDA of $20,700,000 was up 4% from the first quarter as volumes, average rates and revenues remained steady for the quarter. During the quarter, Nippon Steel officially closed on the acquisition of U.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

S. Steel, and in doing so crystallized the commitments for substantial investments in U. S. Steel's largest production facilities in Pittsburgh and Gary. We've already seen some pickup in volumes here in the third quarter and expect the bulk of volume increase to impact 2026 and the years ahead.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

At Long Ridge, reported EBITDA for the quarter was 23,000,000 up from 18,100,000.0 in Q1. The second quarter results included the impact of a fourteen day planned maintenance outage and reflected only a portion of the increased capacity revenues, which commenced on June 1. By the end of this third quarter, we expect Long Ridge to reach annual run rate EBITDA of $160,000,000 which includes the impact of increased gas sales coming out of our West Virginia resources commencing production in this month of August. At Jefferson, EBITDA was $11,100,000 up from $8,000,000 in Q1 as we brought four storage tanks previously off lease into service at the beginning of the quarter. It's an important second half of the year ahead for Jefferson as we have $20,000,000 of long term annual EBITDA commencing over two contracts, each with minimum volume commitments.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

And at Repono, we completed financing for our Phase two transloading project. Issued $300,000,000 of tax exempt debt at average pricing of 6.5% to fund construction and a number of reserve accounts. Importantly, we signed an additional letter of intent for our Phase II project, bringing our total volumes under contracts and LOI to just over 70,000 barrels per day and representing a total of approximately $80,000,000 of annual contracted EBITDA. Starting on Slide 10, I'll get into some more detailed quarterly figures at our segments before wrapping up the call. Digging a little bit more into TransStar.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

We posted revenue of $42,100,000 and adjusted EBITDA of $20,700,000 in Q2 compared to revenue of $42,600,000 and adjusted EBITDA of $19,900,000 in Q1. Carloads, average rates and revenues for the quarter were largely unchanged versus last quarter. Operating expenses also continue to be stable as fuel costs and other material cost items have been largely unchanged. Earlier on the call, I described our expectations resulting from Nippon's acquisition of U. S.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Steel, but we continue to drive third party customer growth on each of TransStar's railroads. Also, while the combination with Wheeling is our primary focus in the near term, we are actively pursuing additional acquisitions of complementary railroads that further diversify our revenue and commodity base and open up additional growth opportunities through an expanded platform. We very much expect freight rail to grow as a percentage of our total assets in quarters and years to come. Next on to Long Ridge. Long Ridge generated $23,000,000 of EBITDA in Q2 versus 18.1 capacity factor was 83%, reflecting the fourteen day maintenance outage that we took in May.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

We typically take outages twice a year and try to plan them during periods of lower power demand in the spring and early fall to minimize the financial impact. In 2Q, the outage represented approximately $3,000,000 of EBITDA that did not materialize while the plant was down. Gas production averaged about 64,000 MMBtu per day. We're bringing our West Virginia gas production online later this month, resulting substantial increase in production and allowing us to generate incremental revenue and EBITDA from excess gas sales. Higher capacity revenues kicked in on June 1, representing approximately $30,000,000 of additional annual EBITDA.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

As I mentioned earlier, the reported results of Q2 reflect only this one month of the higher capacity revenue, so we expect to report significantly higher results in Q3 just by virtue of reflecting a full period of capacity revenue. And the 20 megawatt upgrade in our power generation continues to advance, and we expect to receive authorization at some point here in the remainder of 2025. With a solid first half of the year behind us, our focus now is advancing multiple behind the meter projects, including most notably negotiations with data center developers. Based on the current state of discussions, we continue to anticipate entering into one or more transactions for data centers at Long Ridge during the remainder of 2025. On to Jefferson.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Jefferson generated 21,600,000 of revenue and $11,100,000 of adjusted EBITDA in Q2 versus $19,400,000 of revenue and $8,000,000 of EBITDA in Q1. Volumes were higher in the first quarter and average realized price per barrel was higher as the four tanks which were previously off lease returned to service on April 1. As discussed, we have two contracts representing a total of $20,000,000 of incremental annual EBITDA commencing during the second half. In addition, we are in late stage negotiations for additional contracts with multiple parties to handle conventional crude and refined products as well as renewable fuels, with some of these negotiations involving business that would commence this year in 2025. In closing out with Repauno, we closed our tax exempt financing for Phase II in May.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Construction is well underway for the above ground storage tank, manifolds and additional rail unloading capacity. We have two customers signed up under the long term contracts and the additional customer with whom we're advancing the letter of intent. In the aggregate, these three pieces of business represent volumes of 71,000 barrels per day and 80,000,000 of annual EBITDA. The two contracts are each for five year terms commencing upon completion of the Phase two construction, while the third letter of intent is for five years with a two year extension at the option of our customer. Phase two remains our current priority, but we're excited about the advancement of the next phase at Repauno, including the development of additional underground storage for which we expect to complete permitting prior to the end of this third quarter.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

In conclusion, we are extremely happy with our team's progress during the first half of the year. We're even more excited than ever about the opportunities that lay ahead. The Wheeling acquisition and the refinancing transform our company and set the stage for meaningful growth in the quarters to come. I'll now turn the call back to Alan.

Alan Andreini
Alan Andreini
Head - Investor Relations at FTAI Infrastructure

Thank you, Ken. Michelle, you may now open the call to Q and A.

Operator

Thank And our first question comes from Giuliano Bologna with Compass Point. Your line is open.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

Hi, good morning. Congrats on continued execution on the Wheeling transaction. As a first question, can you talk a little bit more about the synergies of putting Brandstar and Wheeling together?

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Yes, absolutely. Good morning. We've been active in the freight rail space now for roughly twenty years between Rail America where we made a number of acquisitions, the FEC and the Central Maine in Quebec. And so combinations, acquisitions, integration of rail assets is something we and our management teams have had a good amount of experience in. I feel really good about the $20,000,000 of annual savings between the two companies. It's a long list of individual items, but they're very discreet. There's a little bit of upfront cost to implementing these savings, but once you invest, you stick with them.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Mean, map on the first slide of the presentation, I think, was very important. I mean, is a perfect fit, and the types of efficiencies that we can realize immediately upon closing of the transaction are incredibly meaningful. I am highly confident that the $20,000,000 of annual cost savings is something we will certainly be realizing in the next six to twelve months.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

That's very helpful. And then as a follow-up, you spoke in the past about the importance of diversification in the shoreline rail space. Can you expand on that and the implications that this deal has on the combined transfer?

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Definitely, yes, I'm glad you asked. I do think that this transaction is a game changer for the overall value proposition of our rail platform. Diversification I mean, Transstar is a super rail asset. And it's been growing, generating significant cash flow. It has some great attributes.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

It does not have a tremendous amount of diversification in terms of its customer. Transstar is 85% of our existing business. Pro form a for the combination with the Wheeling, TransStar, U. S. Steel will become a third of our total business.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

We're adding two fifty customers and a whole bunch of different commodities into the mix for the combined company. What that means is, as I said in some of my prepared remarks, I think, it's a significant uplift in the implied multiple when you think about valuing the business. Diversified freight railroads consistently trade in the mid teens. There have been probably 20 transactions over the past five to ten years in the rail space, including a big one most recently with the UP Norfolk Southern News, which by the way occurred at just north of 15 times EBITDA. I really feel comfortable that now we have a business that trades in line with those industry multiples.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

And that's great. I'm not sure TransStar on a standalone basis would trade at that multiple. It might, it might not, maybe it's a 12 or something like that. But the diversification gives us that kind of multiple expansion opportunity, and I think it's a big thing for our common shareholders.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

That is very helpful. I appreciate that. And I'll jump back in the queue.

Operator

Thank you. Our next question comes from Greg Lewis with BTIG LLC. Your line is open.

Gregory Lewis
Managing Director at BTIG

Yes, thank you and good morning and thanks for taking my questions. My first one was kind of, I guess, a continuation of Giuliano's questions on the rail. I mean, hey, you called out the Union Pacific deal. And obviously, now with you guys acquiring Wheeling, has something has anything changed here in the last year that's kind of making this driving this maybe pick up the consolidation in the rail space? Do you see continued opportunities to kind of continue to bolt on potential other short rails?

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Good morning, Greg. Yes. The UP and SDI won't comment much on, we obviously have a very business friendly administration and I'm sure that's part of the atmospherics. Generally, our experience has been that these rail transactions and M and A activity tends to come in waves. And, there have a handful of transactions over the past twelve months.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

We're aware of a number of opportunities over the next twelve months and we're in a dialogue with a handful of counterparties. I can't say anything has fundamentally changed in the industry. It's an industry that's been around for about one hundred and fifty years. It's one of America's oldest industries. So, you know, nothing fundamentally has changed, but I can say we are seeing, I'd say, a mild pickup in activity.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Look, more importantly, we as a buyer are much more potent and competitive than we might have been last quarter. The combination with the Wheeling scale allows us to integrate additional railroads, either regionally focused or elsewhere, and finance, additional acquisitions at a lower cost and more readily. Hopefully we continue to see a good pace of opportunities. I think we're better positioned to act on them than we were yesterday. And so we're excited about that.

Gregory Lewis
Managing Director at BTIG

Okay, great. And then just on Long Ridge, I appreciate the prepared comments. As we kind of think about the opportunity there in the EBITDA bridge, you kind of call it 70,000,000 of opportunity. Could you maybe talk what's in there and potentially what's not in there? It looks like it came down sequentially.

Gregory Lewis
Managing Director at BTIG

Clearly, I'm kind of curious about 20 megawatts that you potentially have in development and anything else that maybe could Thomas, maybe you mentioned data centers again. Can you kind of talk about what's in that $70,000,000 and what's not?

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Yes, definitely. So, yeah, I'm glad you asked. We try to communicate in that bar chart, only revenue and EBITDA in particular that is locked in. You mentioned something that I'll respond to the looked like the 70 came down. The way that we show things in that bar chart is we take, the total contracted EBITDA for each asset and then we just show the increment from what is already reported in the most recent quarter.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

And so the number and expectation for Long Ridge has not come down. It sat at $160,000,000 But over time, how much of it is baked into the bar on the left versus how much is on the come, more will be shifted to the bar on the left and less on the come as we pass through a number of quarters. Long Ridge in particular has been a very dynamic business segment for us.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

One, because of the financing activity and

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

the consolidation of the business in Q1 and two, in Q2 here because of higher capacity revenues and in Q3, we'll see materially higher EBITDA from Long Ridge as we reflect both the full quarter's capacity revenue and the excess gas sales. And so what you'll see over time in that bar chart, I am guessing are these bar charts for the next quarter, is the left hand bar will get bigger and the increments as we make our way to the right, if nothing else changes, will become smaller, because more of the actual financial contribution will be in the reported results. Outside of that, what's not in the results? I mean, regarding data center opportunities that could be, we've spoken before, I think a data center opportunity may add $75,000,000 of annual EBITDA. That's not in the bar chart.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

The new 2026, 2027, capacity revenue, and auction results, which by the way are now at a new record and we just saw PJM capacity revenue increase for next year from two seventy dollars per megawatt day to $329 per megawatt day. That is a new record. That uplift is not in the bar chart. Up rates and other elements of the business are not in the bar chart. Only what is in the bag contracted is included in those bar charts.

Gregory Lewis
Managing Director at BTIG

Okay, super helpful. Thank you very much.

Operator

Thank you. Our next question comes from Brian McKenna with Citizens. Your line is open.

Brian Mckenna
Director - Equity Research at Citizens JMP

Thanks. Good morning everyone and congrats on all the announcements this week. Ken, it will be great to get an update on Phase three in the caverns at Repauno. Where do things stand in terms of finalizing the permitting process? And then can you just remind us of the financials of the project?

Brian Mckenna
Director - Equity Research at Citizens JMP

What the time line could look like from start to finish? And then really, how how are you thinking about the long term value creation opportunity here?

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Yes, great. Good morning, Brian. The permitting of Phase III has been it's certainly been a lengthy process. We of course do not control the Penn. The New Jersey DEP is the final authority on awarding the permit. We have been informed that a final permit, signed final permit should be in our hands by September 30. So, that is our current expectation, and we don't have any reason to be hesitant around that date.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Phase three could be ultimately very significant. Our initial plans are to develop two underground caverns of 600,000 barrels each for 1,200,000 barrels. Total cost to do so would be about $200,000,000 The beauty of caverns is they are less costly to build and they last forever. They're much, much easier to maintain. So about $200,000,000 of upfront capital.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

And just using our phase two contracted rates, that represents about $100,000,000 of EBITDA. So the payback is a two year payback on assets that live for fifty to one hundred years. So it is a extremely attractive investment. We'd finance it with additional tax exempt debt. We just had some great success in the market during 2Q, raising $300,000,000 We launched that transaction at a 7.5% coupon.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

There was plenty of demand, and we were able to bring the coupon down to a 6.5% blended coupon. So we're really happy and very much appreciate the support from the tax exempt investor market in that transaction. And we'd love to come back to that market for more capital for Phase III when it's ready to go.

Brian Mckenna
Director - Equity Research at Citizens JMP

Okay, that's great. And then I guess just one follow-up there. Just in terms of the construction timeline for Phase III, I mean roughly how long will that be?

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

It's about two years, about two years from beginning to end.

Brian Mckenna
Director - Equity Research at Citizens JMP

Yes, got it. Okay, cool. And then a follow-up on Repauno as well. Just Phase two construction, how is that going thus far? And then I guess just from the outside, are there any major milestones we should be watching just in terms of the progress there and ultimately marching toward the four-two-twenty six start date?

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Yes. Everything on time, on budget, going great. The team that is administering construction is the same team that built everything we own today at Jefferson. I mean, Jefferson is on the construction front a great success story. Virtually everything we've built at Jefferson has been on time, on budget.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

A good chunk of what we built was during the pandemic with supply chain issues, but the team did a remarkable job keeping things in line with budget and timeframes. Essentially, it's just going be a continuous process. I can't say there are particular milestones per se. We need to complete the project in Q3 so we can commission and have it operating in Q4. And I'm confident our team is going be able to do that.

Brian Mckenna
Director - Equity Research at Citizens JMP

Okay. Great. And then just last one for me on Long Ridge. Just given all the demand for power in the PJM, have you seen an increase in reverse inquiries for both power as well as the power plant?

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Yes, definitely getting plenty of inbounds on Long Ridge. Fair amount of interest in the asset, it's a dynamic time in the power sector, of course. Owning one of the most reliable and efficient power plants in North America, one of the few that can blend hydrogen, has hundreds of acres of adjacent land in a state that is incredibly business friendly. I mean, that's you can't get much better than that. So we are in an active dialogue with a number of folks.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

You mentioned an interesting point. Yes, the dialogue is of course with data center developers first and foremost, but there are a number of other parties who have an interest in either power or bigger developments at Long Ridge. I would be surprised if we don't have some development here in the coming months. As I said in my early remarks, we're certainly on a pace to have something announceable here, we're comfortable saying prior to the 2025.

Brian Mckenna
Director - Equity Research at Citizens JMP

All right, I'll leave it there. Appreciate it, Ken.

Operator

Thank you. Our next question is a follow-up from Giuliano Bologna with Compass Point. Your line is open.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

Thanks for letting me back in. I wanted just to reach out and kind go back because there's been a lot of things that happened this year. At the beginning of this year, one of the things you said was that you want to refinance you want to do a refinancing at Long Ridge along with some other related transactions. You want to go out and finance raise the financing for Phase two at Repauno. You also want to refinance or recap the HoldCo balance sheet and also make a large rail acquisition.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

You've accomplished all of those items this year. And I'm curious, when we look forward, what's next in terms of things that you're looking to achieve or complete this year and next year?

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Yes. Well, I appreciate that. We certainly it's been a very active first half of the year and I'm really happy between the first half and then these very recent announcements that we've gotten all that stuff behind us. First and foremost, closing on the acquisition of the Wheeling and making sure the integration between the two companies goes smoothly and flawlessly is a priority for us. Look, I think over time, we're going to continue to be focused on growing the freight rail segment.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

That is, a sector we've loved. We've had a tremendous amount of experience in. And, I think there's a lot of value left to create in freight railroads. Our other assets over time will become a smaller percentage of our total assets and cash flow. And as they reach stabilization, I wouldn't be surprised if we seek to monetize some of those assets once stabilized at the valuations we're expecting.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

And look, I'd love to monetize some of those other assets and buy more freight railroads. Ultimately, you could see our company predominantly or entirely becoming a publicly traded freight rail business, just like Rail America was and a handful of other companies that were great public companies. So look, no promises and that's a longer term plan, but I think more acquisitions in the freight rail space will continue to be a focus for us. And over time, probably some accretive monetizations of our other businesses.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

That's extremely helpful. And maybe to jump in with one kind of follow-up on the margin there. I think in the past, you kind of talked about, obviously a lot more activity in the freight rail M and A world and that there's a handful of larger properties. I'm assuming we've like being one of those larger properties that you're referring to in the past. And then some other small tuck ins that could be out there for sale or acquirable.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

In the near term, are you seeing opportunities for smaller, high single digit EBITDA or low double digit EBITDA assets? Or are you looking for seeing more opportunities for assets that are closer to the size of Wheeling in the market?

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Yes, there's a constant flow of smaller businesses and assets. They tend to not move the needle as much. So I have to admit, we will be focused on things that are a little bit more chunky, certainly into the double digit EBITDA levels. If we find an opportunity that is particularly local or a straightforward tuck in, sure, we would do that. Probably won't move the needle very much for us.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

I think we're more focused on the other short line of regional railroads out there, some of the switching lines, the transtars of the agricultural industry. Transtar is not the only railroad that was owned by a large industrial company. There are plenty of opportunities out there to allow bigger companies to divest of their in house rail portfolios. And so we're in a dialogue with some of those owners. It's a huge industry.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

There are over 500 total short line and regional railroads out there. Many of them have been consolidated. And so there's an opportunity to find chunkier transactions. I'm sure we'll see plenty of opportunities come to the market over the next six to twelve months. And I'm excited.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

I think we can be really competitive in those processes.

Giuliano Bologna
Managing Director at Compass Point Research & Trading LLC

That's extremely helpful, and congrats on all the execution this year. I will Back in the

Operator

Our next question is a follow-up from Brian McKenna with Citizens. Your line is open.

Brian Mckenna
Director - Equity Research at Citizens JMP

Okay. Thanks for the follow-up. Just on the $1,000,000,000 of preferred stock, 10% dividend rate, it's not cash pay, so that's 100,000,000 of incremental annual cash flow. Is there a way to think about how much of that cash flow will ultimately flow up to the holdco? And then how much of that do you want to retain for growth CapEx at the RAL segment?

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Great. I'm glad you asked, because there's yes, there's an important element to both the acquisition and the financing. It is a game changer for cash flow at our holding company. While the preferred stock sits at the rail entity, it is non cash pay and it doesn't trap cash. And so that $200,000,000 target of EBITDA, there's some CapEx of course at the rail level, but it's not a tremendous number.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

Cash flow at the rail company can be fully distributed to FIP. We'll have debt service, of roughly $100,000,000 but you can do the math. Net net, there's significant excess cash flow at FIP. Look, growth capital at the Rail business, I mean, this point, we certainly don't have anything identified. We have the ability to put a small working capital facility at the Rail business.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

So, we'll probably have that in place to fund small opportunities as they come up. I think the growth capital step is just something you take as it comes. We have a handful of opportunities and the folks at Wheeling have a great pipeline of new opportunities. Most of that stuff frankly doesn't require a lot of capital. They're really wins that are relatively straightforward and come at very low cost.

Ken Nicholson
Ken Nicholson
CEO & President at FTAI Infrastructure

The additional business coming from Repauno, I mean, there's no additional capital needed for moving those railcars out of the fractionators. And so that's all been historically invested. The track systems are all there. Others are providing the rail cars. So honestly, don't think there's going to be a tremendous amount of capital retained at the rail company, and most of it will be distributed up to FIP for FIP to use for a variety of different purposes after debt service.

Brian Mckenna
Director - Equity Research at Citizens JMP

Alright. That's super helpful. Appreciate it.

Operator

Thank you. I'm showing no further questions. This does conclude the program, and you may now disconnect. Everyone, have a great day.

Executives
    • Alan Andreini
      Alan Andreini
      Head - Investor Relations
    • Ken Nicholson
      Ken Nicholson
      CEO & President
Analysts
    • Giuliano Bologna
      Managing Director at Compass Point Research & Trading LLC
    • Gregory Lewis
      Managing Director at BTIG
    • Brian Mckenna
      Director - Equity Research at Citizens JMP
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