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August 1, 2014

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Las Vegas Monorail officials thinking beyond crushing debt

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

In the Red

Since it began carrying riders in 2004 on a 7.8-mile roundtrip route from the MGM Grand to the Sahara and back, the Las Vegas Monorail has fallen far short of projections, despite boasting more than 40 million passengers to date. The monorail has blamed its shortfall on the cratered economy and the drop in tourism.

Although it has been able to pay for daily operations through fares and advertising revenue, it hasn’t come close to retiring its debt. The company says that if it can restructure that debt, it will be able to expand to McCarran International Airport.

Even as the Las Vegas Monorail goes through bankruptcy proceedings, its proponents are touting possible futures for it.

Their hopes are tied to the Regional Transportation Commission and extending the monorail to McCarran International Airport.

One scenario would involve financial backing from China. Another is to get Federal Transit Administration funding, but that would require sponsorship by a government agency in Nevada. And a third, one that has long been speculated to be the monorail company’s ultimate bailout plan — Partnering with the valley’s public bus system.

Whether the monorail might have any future at all, however, hinges on an upcoming ruling on Chapter 11 protection by U.S. Bankruptcy Judge Bruce Markell.

The monorail would have to be able to reorganize its massive debt before it could move forward.

If that happens, monorail board member and former Clark County Commissioner Bruce Woodbury says, “We then think it makes sense to improve and expand the system. Most people I’ve talked to say the monorail is a good thing, but that it needs to go to the airport. In order to attract any funding for that, we would have to get the debt restructured.”

Woodbury, also a former chairman of the Regional Transportation Commission and one of the state’s leading authorities on transportation, says he has had informal discussions with the RTC about merging the monorail with its mass-transit bus system. The monorail would still be owned and operated by the nonprofit company, but it would integrate with RTC transit systems in the resort corridor.

Woodbury said monorail President and CEO Curtis Myles, who used to be RTC assistant general manager, speaks regularly with RTC General Manager Jacob Snow. (Ingrid Reisman, monorail vice president of corporate communications, is a former RTC employee.)

Myles, however, is floating a couple of strategies for a post-bankruptcy monorail. He is looking at applying for Federal Transit Administration money and has also been pursuing a possible partnership with Chinese investors and government agencies.

To apply for the federal funding, Myles said the monorail likely would have to be sponsored by a government agency in Nevada. Woodbury says the most likely partner would be the RTC.

“We’d have to find a way to integrate the monorail with the mass transit system that could involve the sharing of stations,” Woodbury says. “But the RTC won’t sponsor the monorail for federal funding unless the monorail can be integrated with the mass transit system.”

Woodbury said neither the RTC nor Clark County is interested in acquiring the monorail outright should it fail to restructure its estimated $500 million to $1 billion in debt from construction bonds that are in default. Woodbury says the board does not consider the sale of the monorail an option.

“We’re not looking for any investors to take over the monorail,” he says. “We’re looking to continue as a nonprofit entity.”

Myles took a five-day trip to Beijing in June with representatives of the proposed DesertXpress high-speed train that would link Las Vegas with Southern California. He says he met with potential investors and senior Chinese government officials who work for a state-owned bank and railway company.

“There are still doors open with these individuals,” Myles says. “My understanding is that they are performing their due diligence. The idea is that there would be a seamless system connecting the existing monorail with the airport.

“The Chinese are looking to franchise their rail system expertise around the world.”

Woodbury says he would welcome Chinese involvement only if those officials wish to invest in new bonds to extend the four-mile monorail to the airport — not as owners of the system.

And he concedes that the monorail would undergo tougher scrutiny to issue such bonds, given that the transit operator defaulted on its current $649 million in industrial development bonds. The default has been attributed to overestimated ridership projections made when the bonds were issued in 2000.

“For any new bonds, we would need multiple sources of independent analysis of future ridership,” Woodbury said. “Extending to the airport could help ridership on the existing portion of the system, but any new bonds would be scrutinized carefully by potential investors.”

Whether an airport extension would turn the monorail into a financial winner remains in doubt, however.

Las Vegas firm Applied Analysis concluded last year that “it is unclear if such an expansion will be self-supporting.”

That study has been cited by the monorail’s major creditor, Ambac Assurance Corp. of Wisconsin, as an example of why the transit operator should be treated for bankruptcy purposes as a government entity under Chapter 9 rather than a private nonprofit corporation under Chapter 11. The study of the monorail system was commissioned by the Nevada Business and Industry Department, the agency that issued the $649 million in bonds.

Ambac, which has insured more than $450 million of the bonds, has argued that the monorail is ineligible for Chapter 11 because it was labeled by the state as an “instrumentality of the state” for tax purposes when the tax-exempt bonds were issued. The monorail disagrees that it is controlled by the state, arguing it must maintain a business license and a franchise agreement with Clark County and that it has no taxing authority.

Legal experts have told the Sun that creditors such as Ambac would have more control over the potential sale of assets under Chapter 9 than under Chapter 11.

High Pay

According to the monorail’s filing with the Internal Revenue Service for 2008, the company’s top salaries that year went to President and CEO Curtis Myles III, $346,477; Vice President of Corporate Communications Ingrid Reisman, $146,400; Security Director Joseph Dorsey, $135,926; Operations Director Timothy McFadden, $114,341; Chief Financial Officer Ross Johnson, $85,212; and General Counsel Michael Niarchos, $45,000.

In 2008 the monorail also paid board directors Terry Murphy (a public policy consultant and former administrative services director for Clark County), Pat Shalmy (former Clark County manager who has served as president of Nevada Power and the Las Vegas Chamber of Commerce) and attorney Alex Hossack $55,000 each. Board director Bill Bible, president of the Nevada Resort Association, was paid $45,000, and board director Robert Faiss, a gaming attorney, was paid $35,000. Each board member was listed as having averaged only one hour of work per week. Of those, only Shalmy remains on the board.

High-Profile Affiliations

Robert Broadbent, after whom the monorail was formally named, spearheaded its development. He is a former Clark County commissioner and aviation director, and served in the Reagan administration as Interior assistant secretary for water and science.

Former monorail executives include former Henderson Mayor James Gibson and Cam Walker, Broadbent’s son-in-law, who is now a member of the Boulder City Council.

Former board members include John Haycock, who has served as president and CEO of Haycock Petroleum and president of the Western Petroleum Marketers Association.

Current board members are Shalmy, former County Commissioner Bruce Woodbury, former state Sen. Bob Beers and former gaming executives Mike Sloan and Anthony Santo.

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