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December 20, 2014

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Las Vegas Monorail bonds downgraded after bankruptcy filing

Monorail

Tourists look at ticket prices and routes of the Las Vegas Monorail at the Flamingo station on Monday, June 22, 2009. Launch slideshow »

Beyond the Sun

Fitch Ratings today downgraded to "D" from "C" its rating on hundreds of millions of dollars of Las Vegas Monorail bonds -- no surprise given the monorail company's bankruptcy filing last month.

"The 'D' rating primarily reflects the Chapter 11 bankruptcy filing on Jan. 13; the related disputes over control of the revenues from ticket sales and advertising between the monorail and Wells Fargo, the (bondholders') trustee, to pay for operating expenses; and the financial metrics of the enterprise which suggest that a payment default is virtually certain on the scheduled July 2010 payment," Fitch said in a statement.

The rating covers $451.4 million of the monorail's $649 million in bond debt.

"The monorail continues to earn enough revenue to cover its operating costs; thus monorail operations are currently expected to continue. However, recent disputes over the allocation of revenues between the monorail and the trustee, in addition to disputes with Ambac over whether the enterprise is eligible for Chapter 11 bankruptcy, further complicate matters," Fitch said.

Fitch was referring to demands by bond insurer Ambac Assurance Corp. that the monorail's Chapter 11 case be dismissed so that the monorail can refile as a government agency under Chapter 9.

Under Chapter 11, Ambac has said it could lose up to $1.1 billion to cover payments on defaulted monorail bonds.

The monorail says Chapter 11 is appropriate for its reorganization since it insists it is not a government agency.

Fitch also was referring to recent disputes between the bondholders' trustee and monorail management over the management of daily monorail cash receipts and disbursements.

Bankruptcy Judge Bruce Markell has set a Feb. 17 hearing on Ambac's motion that the Chapter 11 case be dismissed and on the disputes over what is known as "cash collateral" between the bondholders and the monorail.

In court papers, 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, 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.

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