You might not know Cubic by name, but if you’ve tapped into the MTA or BART, you’ve used their payments technology.
Behind the scenes, the Elliott Management and Veritas-backed transit giant has been dealing with financial struggles related to contract losses and high-profile tech glitches, including a 27-hour BART outage in May caused by an unpaid AT&T bill.
In this episode of Cloud 9fin, interim distressed debt editor Sasha Padbidri joins distressed debt reporter Nicholas Rizzi to break down his investigative deep dive into Cubic’s debt load, its recent setbacks and what comes next.
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Episode transcript:
This transcript was generated with AI assistance. Report any material inconsistencies or inaccuracies by emailing podcast@9fin.com.
Sasha Padbidri
Hey everyone, my name is Sasha Padbidri, and I'm the interim distressed debt editor at 9fin. Welcome to this week's episode of Cloud 9fin. And today, making his podcast debut is Nick Rizzi, one of the distressed debt reporters. And today, we will be unpacking the situation on Cubic. Welcome, Nick.
Nicholas Rizzi
Thanks for having me.
Sasha Padbidri
Yeah, so let's get into it. I mean, first of all, you wrote this really awesome story on Cubic, which a lot of people loved. I can speak for a lot of people when I say a lot of people loved it. You know, it seems that Cubic has had a couple of high-profile hiccups, to say the least, and you specifically reference a BART incident in May at the start of a story. So let's unpack that. And can you also describe what Cubic is for our audience?
Nicholas Rizzi
I'll start off just saying what Cubic does. If you've taken public transportation in many cities in the country, you've dealt with Cubic. If you've paid to get on what your cell phone or like in New York an OMNY card, Cubic is the company that runs that. They also have a defense arm that does different software for training, but the transportation is the main one that people recognize.
And so in San Francisco they run the BART system. And so in May people were trying to get to work, it was Monday morning rush hour, and all the ticket machines were down. Fun, yeah, and you know it wasn't just one station; it was across the board, and it was down for 27 hours. So people were trying to scramble to figure out, you know, if they're used to using their card, they couldn't put money on it, so they were trying to figure out how to get through.
Some station agents were just opening the gate and just letting people in for free, and then eventually, you know, a little bit down the line, they figured out what the problem was. It wasn't a big major technical hiccup. Cubic forgot to pay their AT&T bill. Apparently, they had two accounts tied to the service. They didn't pay one of them. They sort of slipped beyond the radar. So it's a 27 hour outage because they failed to pay their bill. Essentially.
Sasha Padbidri
Oh yikes! That's kind of embarrassing, isn't it? Yeah,
Nicholas Rizzi
Yeah. I mean, that's like a move I would do if I'm not in charge of a company.
Sasha Padbidri
Right. So you know, what exactly was the reaction to that, especially from BART?
Nicholas Rizzi
Yeah, it wasn't great, to say the least. There's already been a lot of delays. They've been sort of transferring to pay for BART. You use what's called the Clipper card. They've been transferring it to a new version called Clipper 2.0, and there's been a lot of delays with that. And so, frustrations were mounting already. And this was kind of just like one of the last straws.
There was a really long meeting where they went over transfer to get to Clipper 2.0 right, and this is where hey let them know about the AT&T bill, and one BART official basically told them that they have zero credibility left, and went on a really long speech about all the issues and just said we're so done with Cubic, and so now officials there are trying to working with their lawyers to try to figure out ways to maybe get out of their contract a little early or modify it a little bit. Some other transit officials are trying to seek missed revenue because they lost during the rollover they've lost about $100,000 in loss fare. That's insane, and it's counting. And a lot of these agencies in the Bay Area are cash strapped as it is. So, losing any money is kind of difficult for them, especially this much.
Sasha Padbidri
Right. Just to rewind a little. For many years, Cubic — which is a leverage credit, by the way — they were a dominant player in the transit fare collection space, right? So, in many major US cities and abroad, what's changed? Like, what's happening now?
Nicholas Rizzi
Yeah, yeah. Before they were pretty much the only game in town, and they got a lot of long term contracts. Like in New York, they run the OMNY system. They ran the Transport for London system and a couple of others, and then more and more smaller upstart companies have started to come and take over. And they to win these contracts, they have to submit bids with local government agencies, and they've been on a run of losing back to back ones. They've lost one of the biggest ones which was the Transport for London bid they lost last year that was worth £800m and
Sasha Padbidri
One billion USD just FYI for our audience.
Nicholas Rizzi
Yeah and you know that that was a big blow for them then they lost Sydney, Washington DC and the Miami-Dadeone is in the process but it doesn't look like they're going to win that either. And in Washington DC, Sydney and London, they were already the incumbent fare collecting, and they were just doing upgrades and changing the contracts, and they lost to different rivals. So their kind of monopoly on the system is going away.
Sasha Padbidri
Got it. Yeah, I mean, listen. I looked at your story. It also seemed that they did a liability management exercise last year. You know that was supposed to give them some sort of liquidity. So what's happened since then? Because it doesn't look like it really did much.
Nicholas Rizzi
Yeah. So as part of that LME, they swapped out $1.6bn of their debt into new instruments, and they also got $275m of new money. Soon after they lost the Transport for London bid, and then Miami, all those other ones came soon after that. So they weren't getting new contracts and getting new money, and a lot of people and management were like the Transport for London was going to be a big money maker for them. That's all they needed to get them through this rough patch, and so that didn't come through. And then they started deferring interest payments in January. They deferred to others, and now lenders went restricted recently, and they're in talks with them to get another infusion of cash.
Sasha Padbidri
Yeah, yikes! Again, Cubic was acquired in a 2021 leverage buyout by Elliott Management and Vertas. But it seems like, in addition to all of this happening, their sponsors have also made some other changes to the company, according to your reporting. So, could you walk our audience through that?
Nicholas Rizzi
Yeah, yeah. You know, one source told me that a common criticism for some LBOs is that there's what's known as a brain drain. So a lot of the talented people, not necessarily the C-suite, but lower level employees who have all this institutional knowledge, leave for you know greener pastures, as they say, and that we've had a huge staff turnover that was kind of evident with the MTA and the OMNY rollout in 2024.
The MTA sort of demoted Cubic's contract and took them off of rolling out the OMNY system to Metro North and the LIRR, and you know one former MTA official who was known as Mr. OMNY, he was the one in charge of the rollout. He publicly said there was a huge turnover in staff at Cubic, and a lot of people with that institutional knowledge left.
And, you can kind of see the impact of that as it goes on in Sydney, for example. They lost to a smaller company, and that smaller company hired a consulting company who had a lot of Cubic executives who worked for that company and worked on that bid.
And then, if you look at the Transport for London situation, Cubic sued Transport for London for a variety of reasons, saying we shouldn't have lost the bid, and in Transport for London's response, they claim that Cubic failed the first technical question on the bid, and Transport for London was very specific. We put this first because we want to emphasize the importance of this question. So they failed that, and then they said even if they didn't fail that bid, that question, they wouldn't have got a passing grade on the other questions, and then they were making last minute changes to the bid, and it made them feel like there was a lot of risk in if they accepted Cubic's bid.
Sasha Padbidri
Many moving parts. It's just I hate to say this, but what a mess. So final question: Where does that actually leave Cubicright now, and what are you watching for next?
Nicholas Rizzi
Yeah, so I guess right now they're in talks with lenders. It's hard to know exactly how far along these talks are and what's happening. But then they have a bid contract coming up in Vancouver. There's no timeline on when that's going to be awarded. It's going to be worth in American dollars, $359m, and they're shortlisted among a group to be able to potentially win that contract. But the rivals that have been winning in Sydney, DC are also shortlisted. So I think a lot of people who follow this mobility infrastructure are sort of watching to see if they win because there's a fear that they've had a lot of reputational damage by losing all these bids. So now, if they lose another one, what's that going to mean for Cubic’s future?
Sasha Padbidri
Right, and I think that's certainly one that everyone will be watching, just given how reliant we are on it to have a functional transit system?
Nicholas Rizzi
Yeah, yeah. I mean, at my station today, one of the Cubic things, the screen, wasn't working.
Sasha Padbidri
Oh God! All right.
Nicholas Rizzi
So yeah, I didn't try to pay for that using that one just in case I got double charged.
Sasha Padbidri
Listen on the bright side, at least it wasn't a 27-hour outage.
Nicholas Rizzi
Just one turnstile. So it wasn't the end of the world for me.
Sasha Padbidri
Awesome. Well, thank you, Nick, for sharing your reporting with us, and to our audience, if you want a copy of the story, please reach out to us at podcast@9fin.com. We also take complaints about Cubic, the MTA and any other transit system you're working with. So thank you, everyone, again for tuning in to this episode of Cloud 9fin and we hope to see you again next week.