Friday, Nov. 12, 2004 | 11:15 a.m.
Investigations into the problems that have stalled the Las Vegas Monorail for more than two months will continue as planned, even as the company's Canadian operator had its bonds downgraded to junk status Thursday, spokespeople for the operator and the monorail said this morning.
Bombardier Inc., the Montreal-based operator of the $650 million system, was downgraded to junk status by Moody's Investors Service after prolonged low profits in the company's train and aircraft businesses.
The company, the world's biggest maker of train equipment, suffered a significant blow in its aircraft division after the September bankruptcy filing of US Airways Inc., the nation's seventh-largest airline and a key Bombardier client.
That bankruptcy filing came less than a week after Fitch Ratings, a New York financial analyst, placed $451 million in Las Vegas Monorail bonds on "Rating Watch Negative," meaning the monorail's bonds were also in danger of being downgraded into the higher risk "noninvestment" or junk category.
Las Vegas Monorail's bonds remain at BBB-, the lowest rating for investment-grade bonds, according to the analyst. Fitch Ratings and Moody's are two of three organizations that analyze bonds and rates them based on the likelihood the issuer will default. The scale ranges from AAA to D.
Todd Walker, a spokesman for the monorail, said he did not expect Bombardier's woes to affect the monorail.
"They're one of the largest transportation companies in the world, and we have full confidence in their abililty to deliver on their contract in Las Vegas," he said. "It's one of the many reasons they were selected, their stability."
The system remained closed this morning after a two-pound washer fell from a moving train Sept. 8. No one was injured in the incident, which occurred a day after the system reopened following a six-day closure prompted by a 60-pound wheel assembly that fell from the train.
Engineers from Bombardier, Clark County and Exponent, a third-party firm brought in to examine the system, are still investigating the problems. Monorail officials have not released a reopening date.
Transit System Management, the company that runs the monorail, has estimated the system loses $85,000 each day it is closed.
The Bombardier downgrade increases the company's cost to borrow money and could hurt current investors as the value of the bonds will likely drop, according to Moody's.
Dominique Dionne, a spokeswoman for Bombardier, said the downgrade will not hurt the company's operations at its 200 ongoing contracts, which include the monorail.
The existing contracts will not be placed in jeopardy, as the company does not expect to borrow money at the higher rate, she said. Bombardier currently has about $4.9 billion in cash on hand and previous credit lines, she said.
"It's not really a serious issue for us," Dionne said. "We're monitoring the situation so we can work to improve our profitability."
Bombardier has faced a series of financial problems, which in March led to the closure of seven of its European railroad factories. The company has also laid off 6,600 employees, mostly in its European divisions, Dionne said.
Bombardier is still under a $10 million annual contract to maintain the existing 4-mile route from the MGM Grand to the Sahara hotel. Plans for a publicly financed extension to downtown Las Vegas have been put on indefinite hold in light of the monorail's closure, as a $233 million contract awarded Bombardier in October 2003 expired in late September.
No layoffs or significant changes are planned at the monorail, where about 30 Bombardier employees work, she said.
"For us it's business as usual," Dionne said. "It will not impact the monorail or our individual contracts."
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