Bond insurer: Las Vegas Monorail failed to prove eligibility for Chapter 11 bankruptcy

By Steve Kanigher

Thursday, Feb. 11, 2010 | 11:50 a.m.

A major creditor of the debt-riddled Las Vegas Monorail argued Wednesday that the transit operator and the Nevada Department of Business and Industry failed to prove that the monorail qualifies for reorganization of its debts under Chapter 11 of the federal bankruptcy code.

Ambac Assurance Corp. of Wisconsin, which insured most of the tax-exempt bonds issued by the state to build the monorail, said in court documents that Nevada's classification of the monorail as a nonprofit corporation under state law does not in and of itself make the monorail eligible for Chapter 11.

Ambac, which wants the Chapter 11 case tossed out, argued instead that the monorail is controlled by the state and is therefore akin to a "municipality" that is not eligible for Chapter 11. Municipalities, counties and special taxing districts are among the entities that are covered by Chapter 9 of the bankruptcy code.

Ambac stated that the monorail is an "instrumentality of the state" because in order to obtain its tax-exempt financing, it had to "cede significant control rights" to the governor. The governor and business and industry department continue to be involved in the monorail's affairs, Ambac said.

The monorail's organizational documents "provide the governor with significant rights of control," Ambac stated. "Pursuant to these rights, the governor controls the composition of the board of directors and the material financial affairs of (Las Vegas Monorail Corporation)."

"These control rights far exceed the typical regulatory powers which state agencies may exercise over ordinary nonprofit corporations or transportation companies."

The bond insurer also said that the monorail and the state have too narrowly interpreted Chapter 9 to mean that it covers only "real" municipalities and other public agencies. Instead, Ambac argued that the intent of Congress was that "municipality" for purposes of bankruptcy had a far broader definition that includes the debtor's characteristics rather than the way it is classified by the state.

Ambac's latest arguments come a week before the scheduled Feb. 17 hearing in front of U.S. Bankruptcy Judge Bruce Markell, who will decide then whether the Chapter 11 case that was filed last month will move forward.

The monorail had filed a motion earlier this month in which it argued that it was "formed, operated and managed as a nonprofit corporation, and thus is a 'corporation' that may be a debtor under Chapter 11."

The business and industry department supported that argument with a motion of its own, asserting that the state is not responsible for the monorail's debts and does not control its operations. The department also said the governor's involvement with the monorail is limited.

Boyd Law School Professor Nancy Rapoport had told the Las Vegas Sun that creditors such as Ambac might think they would have more say over any potential sale of monorail assets under Chapter 9 than under Chapter 11.