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Published Monday, April 26, 2010 | 5:16 p.m.
Updated Monday, April 26, 2010 | 6:16 p.m.
Sun Archives
- Las Vegas Monorail wants more time in bankruptcy case (4-23-2010)
- RTC to Las Vegas Monorail: You’re on your own (3-11-2010)
- Monorail knew of insolvency for years, files show (2-27-2010)
- Las Vegas Monorail officials thinking beyond crushing debt (2-22-2010)
- Las Vegas Monorail could seek partnership with Chinese (2-17-2010)
- Monorail spending expected to be scrutinized at bankruptcy hearing (2-17-2010)
- Las Vegas Monorail bonds downgraded after bankruptcy filing (2-5-2010)
- Las Vegas Monorail argues against bankruptcy as municipality (2-3-2010)
- After all the promises, will taxpayers be stuck with the monorail’s bills? (1-22-2010)
- Judge sets hearing date in Las Vegas Monorail bankruptcy case (1-19-2010)
- Las Vegas Monorail files for bankruptcy protection (1-13-2010)
The insurer for the Las Vegas monorail’s bonds suffered a setback on Monday when a bankruptcy judge declined to convert the case to a Chapter 9 reserved for government agencies.
Ambac Assurance Corp. of Wisconsin -- which insured the bulk of the $649 million in tax-exempt bonds issued by the state to construct the monorail -- and Wells Fargo Bank had argued that the monorail should not be allowed to proceed under Chapter 11.
Ambac and the bank, which has also done business with the monorail, have argued instead that it acts like a municipality under bankruptcy law and therefore should have filed under Chapter 9.
But, as noted by Judge Bruce Markell in his ruling, the bond documents clearly say the state is not liable for any bond indebtedness. Markell’s ruling would seem to bolster the belief that taxpayers can’t be held liable for January’s monorail bankruptcy and the default on the bonds that were marketed in 2000.
"A key component of the transaction, known to all, was that the state of Nevada would not be liable on the bonds. Indeed, the director (of the state Department of Business and Industry) and other public officials assured the public that no tax revenues would be used to acquire or operate the monorail. Structurally, this promise was honored by making the bonds nonrecourse as to the state of Nevada," Markell wrote in his ruling.
The monorail has said that because of disappointing rider counts it has never been able to make enough money to cover its debt obligations. The system, which started operations in 2004 east of the Las Vegas Strip and on Paradise Road, has said that without financial relief it won’t be able to pay for hundreds of millions of dollars in necessary train and equipment repair and replacement costs.
The recession has deepened problems at the monorail. Ridership fell to 6 million in 2009 from 7.9 million in 2007. The system, which charges $5 for a one-way ride, collected $27 million in fare revenue in 2009, down from $30.3 million in 2007. Advertising revenue has also declined.
Last year, the system generated less than $5 million in net cash flow, far short of the $34 million needed to service its debt.
In looking at whether the monorail was a public agency, Markell noted there has been substantial state involvement in its creation and operations -- but ruled that was not enough to make it a municipality. Besides receiving the bond money raised by the state, the system received state sales tax and county property tax exemptions and its board was appointed by the governor.
"Chapter 9 is a bankruptcy remedy restricted to municipalities. As used in the Bankruptcy Code, this term includes instrumentalities of the state," Markell wrote in his ruling. "Ambac contends that (the monorail) is such an instrumentality, contending that the level of control held and exercised by the state is sufficient for that categorization under recent bankruptcy case law and tax law."
But Markell found the monorail does not exhibit any of the characteristics of public instrumentalities eligible to file for Chapter 9 under the Bankruptcy Code or bankruptcy case law.
"No one seriously contends that Las Vegas Monorail Co. is a political subdivision or agency of the state of Nevada. It has no power to tax, no power of eminent domain and no sovereign immunity," Markell wrote in his ruling.
"While the governor has the power to approve Las Vegas Monorail Co.’s fares, approve its budget and appoint its directors, Las Vegas Monorial Co. operates its day-to-day business in significant isolation from the state. It has more than minimal competition from other government agencies, such as the RTC (Regional Transportation Commission)," Markell wrote.
"It must apply for permission to operate from other public agencies. Its creditors are not, and do not expect to be, creditors of the state. It was created with the express and repeated promise that no taxes would be used to fund its operation. This low level of state control over matters going to essential state sovereignty and essential state functions indicates that Las Vegas Monorail Co. is not a municipality as contemplated by the Bankruptcy Code," the judge wrote.
Separately, a hearing is set for May 19 before Markell to consider a motion by the monorail to extend the amount of time it will have to file a bankruptcy reorganization plan.
The monorail initially had until May 19 to file its plan. The monorail seeks to extend that deadline to Aug. 17.
The need some free money from Obama's stash. New trains, and save all those jobs while keeping the public from extra exhales of CO2 from walking the strip.
Give them the wealth.
$5 million in net cash flow if judged as a public transportation would be hailed as a success. Rare that a public transit system is built in anticipation of paying its build costs back. Most run with government aid for daily operation expenses. In this case their daily operations and future operational expenses including repairs and replacement would be covered by their revenue.
Let it live debt free to do what it is doing. Actually a decent job carrying passengers and reducing traffic especially around the convention center.
I hope Wells Fargo gets taken to the cleaners on this one...
City dodged a bullet there, but the judge made the right call. I could see why Wells Fargo and Ambec Assurance wanted the Chapter 9 bankruptcy. The monorail system was poorly planned and doomed for failure. It should of been build down Las Vegas Blvd.
The Sun's coverage of the Monorail bankruptcy has been way too slanted in favor of Ambac, a Wisconsin based insurer, and the bank, Wells Fargo. Why did Ambac suffer a "setback." Perhaps one would call this a real win for the Monorail and the City of Las Vegas, as it now clear the path for a true reorganization of this very troubled project (which I readily admit). Why is nearly every article from the Sun so critical of its attempts to work through these problems and actually become a real, viable help to the community?!
"But Markell found the monorail does not exhibit any of the characteristics of public instrumentalities"
The more I read about this "municipal" bond deal, the more it becomes absolutely clear that a fraud was perpetrated on the bondholders, assuming that the IRS agrees with Judge Markell. The Monorail is for a private purpose, to transport people from casinos to a convention center. Private purpose bond interest is taxable.
In the financial press, I have read, over and over, that the effect of this ruling will be that all of the interest received by the bond holders over the years will be taxable.
So the bond holders get triple stiffed: They don't get paid, the lien documents are intentionally written so that they do not cover the cash flow, the train cars or the tracks (so foreclosure would be meaningless), and now they run the risk of having to pay income tax on the interest they've received on their not-municipal bonds.
So it's time for the bond holders to sue the one lawyer from Reno, and the big law firm in San Francisco, who wrote the "tax exempt opinion" on these bonds, because they malpracticed.
I've seen the long list of "municipal bond lawyers" from California who put together this bond deal, representing all of the parties. Except for the one clown from Reno, they were all California lawyers.
They are scam artists, who put together at least one OTHER bond deal in California where the "Official Statement" (prospectua) contained outright material misrepresentations (securities law talk for lies). This Monorail deal is even worse than the first, because this is not even a municipality.
The case also involves the same level of "underwriter negligence" as was found in the Merrill Lynch appellate case arising out the the Orange County bankruptcy.
The U.S. Securities & Exchange Commission is supposed to be policing the underwriters and lawyers on crooked municipal bond deals, but they won't do it because their employees are too lazy, stupid and busy watching porn on their computers to enforce the securities laws designed to prevent fraudulent municipal bond offerings. Even if "cities, counties and states" cannot be held liable for securities fraud, the underwriters and lawyers who put together the deals can be.
It's time for the bondholders to demand that their trustee sue these California lawyers and underwriters for securities fraud, and for malpractice in "accidentally on purpose" leaving out the lien/mortgage on Monorail's cash flow, train cars and tracks.
The lawyers who did the dirty work to set up this fraudulent municipal bond deal are Californians, not Nevadans. The Nevada bankruptcy lawyers working on this deal for Monorail had nothing to do with putting together this fraudulent deal.
It's time for the Nevadar Bar to discipline thees California lawyers for practicing in a Nevada without a law license. It happens all the time with no court approval involved.
Th Monorail needs to be extended to the Airport and downtown PERIOD!!!! Do this and then we will see it as a useful service to tourism and local commuting as well. A line out to Stateline would make sense aswell..
The monorail was doomed to fail from the time its route was planned. The only way it could have attracted riders was if it was built smack down the middle of the strip. Instead it snakes around the back of some of the casinos. You don't hear too many "oohs and ahh's" from the tourist crowd when they pass the Flamingo's parking lot. The Deuce (or whatever the new route is called now) is always packed, the monorail is mostly empty. Doesn't take a team of engineers to figure that one out.
Once again, enough stories about the monorail. Tear it down, sell the material for scrap, and be done withit.
Who owns the majority of the bonds that the Monorail issued? It was my understanding that MGM Grand and Harrah's bought the majority of them. Where do they stand in this bankruptcy procceeding?