Monorail firm’s rating lowered

Stephen Curran

Thursday, March 31, 2005 | 10:56 a.m.

The Las Vegas Monorail's lower-than-expected ridership caught up with the system Wednesday, after a Wall Street bond analyst further downgraded the state-issued bonds that helped lay the tracks.

Moody's Investor Service, one of three organizations that analyze bonds and rate them based on the likelihood the issuer will default, on Wednesday downgraded more than $455 million in the company's revenue bonds to the higher-risk junk category.

Fitch Inc., another bond analyst, placed the monorail's bonds on "Rating Watch Negative" in September, meaning the bonds were on the verge of being downgraded by that agency. A downgrade increases the cost of future bond issues and also bars some investors from holding the riskier bonds.

Anne Van Praagh, an analyst for Moody's, said the downgrade is unlikely to have an immediate impact on the monorail's daily operations.

"At this point, because the monorail doesn't have any immediate borrowing plans, it doesn't impact their operations," she said. "The downgrade was based on the view that the project was behind schedule and the ramp-up (in ridership) wasn't there."

According to Moody's, the privately financed monorail company's $81 million in cash and reserves helped prevent it from being downgraded further, although without a "significant" increase in ridership the bonds could be.

The current rating will likely stay in effect for 12 to 18 months while analysts study ridership trends, Van Praagh said.

The bonds, though issued in 2000 by the state Department of Business and Industry, were also insured by Ambac Assurance Corp., as required before the state Finance Committee would sign off on the bonds, State Treasurer Brian Krolicki said. They were used to finance much of the $650 million system.

That insurance policy, coupled with the company's deep pockets, will preclude the downgrade from becoming a factor in future reviews of the state's fiscal health, he said.

Moody's has assigned Nevada a AA rating, one of the agency's highest, and has recently moved the bonds from a stable to a positive outlook, Krolicki said. The monorail company's outlook is negative.

"It is not a liability of the state," Krolicki said. "It is not on the state's balance sheet. That's why the insurance was secured."

Estimates based on numbers so far this year show the monorail have fallen $2.8 million below the $36.8 million in revenue the company budgeted for 2005.

Despite "positive growth" in ridership, bondholders can expect the system to continue falling short of its posted ridership goals, analysts said.

Monorail executives, who met privately with bondholders Wednesday afternoon, stayed optimistic despite the downgrade, Todd Walker, a spokesman for the system, said.

"This is not perceived as a setback for the project," Walker said. "It has more to do with the events of last year. We seem to be past those events."

Jim Gibson, the CEO of Transit Systems Management, the for-profit operations arm of the nonprofit Las Vegas Monorail Company, could not be reached for comment. Gibson is also running for re-election as Henderson's mayor.

The monorail reopened Dec. 24 after a 107-day closure that started after a two-pound washer fell from a moving train Sept. 8. That event occurred a day after the system reopened after a six-day closure prompted by a 60-pound wheel assembly falling from another train.

No one was injured in either event. Officials estimated the system lost about $85,000 a day, roughly $9 million total, in potential revenue during the closure.

Given those setbacks, Krolicki said he would have expected the downgrade to have happened sooner.

"With all due respect to Moody's and the ratings agencies, I'm somewhat surprised it didn't happen earlier," he said.

Since its reopening, the monorail has run mostly trouble-free but has continually fallen short of initial ridership estimates. Walker said ridership numbers for this month were not yet available, but that officials were expecting this month to exceed projections.

It would be the first time. The system last month carried almost 622,000 people -- about 22,000 a day -- and earned roughly $1.8 million, according to the monorail. In January, it carried 691,000 people, pulling a little more than $2 million in farebox revenue.

Both months fell short of the estimated 837,000 people who boarded the system in August, the only other full month it was opened. Officials in February estimated the monorail would carry 36,000 riders on average each day this year.

The system carried 220,000 passengers during the four-day ConExpo-Con/Agg convention earlier this month. Its busiest day came March 16, when it carried a little more than 48,000 riders, well over the average 22,000 people who boarded the system daily last month, according to the monorail.

"The system is now a reliable transportation alternative and we're starting to see a dramatic increase in the March ridership because it's reliable," Walker said. "We've crossed that bridge on reliability and it's now our focus to increase the marketing of the system."

The Federal Transportation Administration, citing lower-than-expected ridership numbers and previous mechanical failures, in January denied the Regional Transportation Commission's request for more than $320 million in public money for a two-mile extension to the existing route from the MGM Grand to the Sahara hotel.

Unlike the current stretch, which is run by the for-profit Transit Systems Management, the extension would have been managed by the RTC.

Moody's in November downgraded the monorail's Canadian builder and operator, Bombardier Inc., to junk status after the high-profile bankruptcy filing of US Airways early that month. Analysts said the airline, a key Bombardier client, had started a domino effect that deepened cuts in Bombardier's train and aircraft businesses.

Bombardier last March closed seven of its European railroad factories and laid off roughly 6,600 employees. The company has not cut any jobs at the monorail.

The firm remains under a $10 million annual contract to maintain the existing 4-mile route from the MGM Grand to the Sahara hotel.