Agency downgrades debt of Las Vegas Monorail

By Las Vegas Sun Staff (contact)

Published Monday, June 22, 2009 | 3:05 p.m.

Updated Monday, June 22, 2009 | 4:23 p.m.

Debt rating agency Fitch said today it downgraded its rating on most of the debt issued by the Las Vegas Monorail, saying default appears to be inevitable because of weak ridership trends and disappointing fare revenue.

Fitch Ratings cut the underlying rating on the $451.4 million in outstanding debt, called the "Director of the State of Nevada Department of Business and Industry Las Vegas Monorail project revenue bonds, 1st tier, series 2000."

Fitch, which cut the rating to "CC" in July 2007, cut it again today to "C".

Fitch does not rate the $149.2 million in outstanding Las Vegas Monorail project revenue bonds, 2nd tier, series 2000; and the $48.5 million in outstanding Las Vegas Monorail project revenue bonds, 3rd tier, series 2000.

"Fitch's 'C' rating on the first-tier bonds reflects an extremely constrained financial environment stemming from continued declines in monthly revenues for the first five months of calendar 2009 as compared to the first five months of 2008 despite a $1 fare increase on the unlimited One-Day Pass. Strong competition from buses on the Las Vegas strip and taxis continue to contribute to the monorail's deteriorating financial position," Fitch said. "Despite management's efforts in recent years to raise and lower fares in efforts to stimulate revenue growth or establish a larger ridership base, fare revenues have failed to grow to levels sufficient to pay debt service."

January to May year-to-date average daily ridership decreased by 23.6 percent to 17,027 from 22,238 in 2008, primarily due to an increase in the unlimited daily fee to $13 from $12, Fitch said. The unlimited pass now accounts for 28 percent of tickets sold, down from approximately half that in 2008. The decrease also reflects lower visitor volumes, air traffic, and convention attendance overall in the region, Fitch said.

Ingrid Reisman, vice president of corporate communications for the Las Vegas Monorail Co., said downgrade doesn't take into effect the decline in visitors to Las Vegas during the economic downturn.

“While the Fitch rating release was not expected, it does not change the status or conditions of our bonds other than the rating itself,” Reisman said in a statement. “What the release does not stress, however, is how the Las Vegas tourism industry and economy has suffered exponentially due to the current economic downturn, and that this decrease in visitation has led directly to losses in Monorail ridership and revenue year over year.”

The average fare in May 2009 increased to $4.45 from $3.52 in May 2008. Despite the toll increase, average daily revenue decreased by 5.9 percent to $76,105 for the first five months of calendar 2009, Fitch said.

"Monorail demand remains weak, in part due to the lack of marketing partnerships with the casinos and more recently weak economic conditions. To the extent management's efforts are more successful than in the past, liquidity may last longer; however, this appears unlikely given the reduction in visitor volumes at Las Vegas," the agency said.