Friday, Sept. 10, 2004 | 11:14 a.m.
The beleaguered Las Vegas Monorail was dealt another blow this morning as the system's prolonged closure prompted a Wall Street firm to place the system's $451 million in bonds on an investment watchlist.
Fitch Ratings, a New York financial analyst, announced this morning it had put the bonds on "Rating Watch Negative," meaning the bonds are in danger of being downgraded. A downgrade would put the bonds in a higher risk "noninvestment" or "junk bond" category.
The potential downgrade would not affect the monorail's current operations but would hurt holders of the monorail's debt as the bond's value would likely drop, Scott Trommer, senior director of Fitch Ratings, said.
The downgrade would also likely increase the cost of future bond issues if monorail executives wanted to borrow to pay for expansion.
Fitch Ratings is one of three organizations that analyzes bonds and rates them based on the likelihood the issuer will default. The scale ranges from AAA to D. The monorail's rating is unchanged at BBB -, the lowest rating for investment-grade bonds, Trommer said.
"That's because of the equipment problems the monorail has been experiencing," Trommer said. "An extended closure could lead to a downgrade of the bonds."
This morning's announcement came the day after monorail management said operators failed to act on 149 warnings that a 60-pound wheel assembly was unstable in the hours before the wheel fell off a moving train last week, prompting the first six-day closure, the chief executive of the company that runs the monorail said at a press conference Thursday.
The system was shut down again Wednesday, barely a day after it reopened after the Labor Day weekend closure, when a two-pound washer came loose from a train that morning.
No one was injured in either incident but the system remained closed Thursday afternoon. Transit System Management, the company that manages the monorail, will not estimate when the privately funded system will reopen this time, Jim Gibson, the chairman and CEO of Transit System Management, said.
Gibson, also the mayor of Henderson, said Thursday he briefs bondholders via teleconference weekly but that no one had threatened to back out of the project.
"They're very concerned but we haven't heard anything like that," Gibson said.
According to Fitch, the $30 million in uncommitted construction funds and $12 million in damages stemming from delays in opening the system on tap prevent any immediate risk to bondholders.
The bonds are also insured by Ambac Assurance Corp., which holds a "AAA" rating by Fitch.
Brian Krolicki, Nevada state treasurer, said the change will not impact Nevada's bond rating as the insurance was purchased in anticipation of minor hangups. The state issued the bonds, but required the insurance. The monorail company is responsible for paying off the debt.
"The rating agencies are doing their jobs," he said. "Obviously there are unanticipated problems."
The system had reported average daily ridership of about 30,000 people during its first 17 days, roughly 55 percent of monorail officials' original forecasts. Fitch had expected initial numbers to continue to climb, Trommer said.
Once it reopens, the system will have to operate trouble-free for an extended period before it will be taken off the watchlist, according to Fitch.
Clark County Building Division officials, who oversee the monorail's safety, say the most recent failure may be related to a January incident in which an entire drive shaft fell from a train while the system was in the testing phase.
The washer assembly was included in a redesign ordered after the drive shaft malfunction, Michael Shaman, vice president of operations and maintenance for Bombardier Transportation, the Canadian company that built and operates the monorail, said.
It was part of a "torque limiting flange" used to secure the drive shaft, he said.
Cam Walker, president of Transit System Management, likened the warnings received by Bombardier operators working at a control center near the Sahara hotel to a flood of e-mail messages coming over a 12-hour period.
At that rate, the 149 warnings would have come in at an average rate of one every five minutes.
"Now you see why I was frustrated," Cam Walker said.
Walker has said his company would pursue "disciplinary action" against Bombardier for the wheel incident because employees were not closely watching the computerized warnings indicating something was wrong.
The company has still not determined what that action would be, he said.
The monorail's warning system is one of several items under review by Bombardier and Booz Allen Hamilton, a McLean, Va.-based consulting firm brought in to investigate the failure, Kathryn Nickerson, a spokeswoman for Bombardier, said.
Shaman said Bombardier investigators will continue to repair the system until the problems are resolved.
"We're a transportation leader and we didn't get there overnight," the Bombardier executive said. "We let them down. It's hard for us to accept."
The press conference was held after the Regional Transportation Commission Thursday morning approved with no discussion an application for federal funds to build the next leg of the monorail line, which will connect the Strip to downtown Las Vegas.
The second stretch of the monorail, which RTC planners had expected to break ground within a year, will be paid for with public money.
Technicians working for Bombardier were at the controls when both incidents occurred. So far no one has been fired, Shaman said.
A Bombardier employee was suspended Aug. 16 after he mistakenly opened a set of doors facing a 25-foot drop while passengers were on board. The passengers inside were transferred to another car while it was inspected.
Todd Walker, a spokesman for the monorail, said Transit System Management will also bring in another consulting firm to investigate the closure. The company had not determined Thursday which firm it would hire, he said.
Bombardier is still under a $10 million annual contract with Transit System Management and will continue to repair the system. The two companies have not yet worked out how Bombardier will compensate Transit System for losses during the closure, Gibson said.
"We had but a day to breathe," before the system was closed again, Gibson said.
Gibson estimated the monorail lost between $85,000 and $100,000 a day during the first six-day closure, an average that would total more than half a million dollars.
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