Good day and welcome to WSJ Pro Bankruptcy's Daily Briefing. It's Thursday, May 21. In today's briefing, Brightline, the Fortress-controlled private rail operator backed by $5.5 billion in mostly tax-exempt municipal debt, is in restructuring talks amid weak ridership, liability pressures and liquidity strain. Meanwhile, liability management exercises can buy distressed companies time, but often fail to fix underlying business problems and may limit future restructuring options, industry experts said at a Beard Group event.

Investors who poured billions into Florida’s Brightline railroad are confronting a potentially steep financial hit as the nation’s largest private intercity rail operator teeters on the verge of one of the largest municipal-market defaults in U.S. history.

Brightline, controlled by Fortress Investment Group, amassed $5.5 billion in debt to get its rail lines up and running, mostly through tax-exempt municipal bonds. The company has since struggled with tepid ridership growth and personal-injury lawsuits tied to accidental deaths on its tracks. Cash is also running low, leaving Brightline on the precipice of a creditor takeover.

Now the company and Fortress are in restructuring talks and seeking new capital, warning that without a financial lifeline it might not continue as a going concern.

Out-of-court restructuring maneuvers known as liability management exercises buy distressed companies time, but they frequently fail to solve operational issues and restrict future restructuring options, according to Sunny Singh, co-chair of Weil Gotshal & Manges’ restructuring practice, at a Beard Group conference Wednesday night in conversation with WSJ Pro Bankruptcy's Alexander Gladstone.

Singh noted that while LMEs can provide distressed companies with financial flexibility, they often fall short of in-court processes in regards to resolving fundamental problems within companies, such as driving operational turnarounds.

“The question is, are you better off doing that, or do you just bite the bullet and fix the business and fix the cap stack?" Singh said. “Or do you want to deal with an LME and have litigation on the back end? You have to think through and figure out what is best for a particular situation.”

While LMEs can buy a company time, they tend to result in much tighter credit documents that constrain subsequent out-of-court transactions, Singh added. “The price for an LME is that flexibility is shut off in the future,” he said. “It makes it more challenging to do something out of court the second time around.”

Dan Fliman, a restructuring partner at Paul Hastings, noted in a separate discussion that private credit lenders have thus far been willing to extend covenant relief to troubled borrowers. This flexibility stems partly from the highly collaborative nature of private credit deals, where lenders frequently rely on private-equity sponsors for continued deal flow.

Private credit has also avoided most of the coercive, lender-on-lender violence transactions prevalent in the broadly syndicated loan space. However, Fliman warned that peace may not last as the asset class evolves and stresses arise.

“The question is where is this all going to go? Everybody’s a repeat player. They all work very well together,” Fliman said. “Now, that may change, and it only takes one situation like Serta for the mentality of lenders to change," he said, referring to the mattress company Serta Simmons Bedding LME.

He questioned whether the LME philosophy will definitively seep into the private credit space. “It is still too early to tell,” Fliman said.

AlixPartners said it has agreed to acquire KSV Advisory, a Canadian restructuring boutique, marking the consulting firm’s expansion of its turnaround and restructuring capabilities in Canada.

KSV, founded in 2015, has worked on high-profile Canadian and cross-border restructuring, including LoyaltyOne, Eddie Bauer and Claire’s.

AlixPartners executives at its turnaround & restructuring services group said the deal strengthens its global restructuring platform amid rising market volatility and expands its geographic reach.

Under the agreement, KSV’s restructuring professionals in Toronto and Calgary are expected to join AlixPartners’ turnaround practice in the Americas. KSV founders David Sieradzki, Mitch Vininsky and Noah Goldstein will become partners and managing directors at AlixPartners. Co-founder Bobby Kofman will join as a senior adviser. The KSV team will operate under the AlixPartners brand when the deal is expected to close at the beginning of June.

Federal Reserve officials all but retired the question that had dominated their debates for the past two years—whether to cut interest rates—and began more seriously at their meeting last month to weigh the opposite: whether to raise them.

“A majority of participants highlighted…that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%,” according to the minutes of the April policy meeting, released Wednesday.

Share your tips, suggestions and feedback with the WSJ Pro Bankruptcy team: Alexander Gladstone; Jodi Xu Klein; Akiko Matsuda; Alicia McElhaney; Becky Yerak. 

Follow us on Twitter: @gladstonea; @jodixu; @AskAkiko; @AliciaMcElhaney; @beckyyerak.