State finds funds to pay law firm in Las Vegas Monorail bankruptcy

By Cy Ryan

Friday, Feb. 4, 2011 | 12:19 p.m.

CARSON CITY -- “This stinks,” says Senate Majority Leader Steven Horsford, D-Las Vegas. “But we have to approve it.”

The Legislative Interim Finance Committee agreed Thursday to shift $176,000 out of a reserve account to pay a national law firm to protect the state in the bankruptcy proceedings of the Las Vegas Monorail.

Bonds for $650 million were issued through the state Department of Business and Industry to build the 3.9 mile system that runs between casinos on the Strip and the Las Vegas Convention Authority.

Lon DeWeese, chief financial officer for the state housing division, told the committee that the state was only the conduit for the issuance of the bonds. But hundreds of millions of dollars are owed the bond holders who invested in the project.

He told the committee that the bond holders, out that large sum of money, may sue the state to recover.

The monorail filed for bankruptcy in January last year in Las Vegas listing debts as being between $500 million and $1 billion owed to between 200 and 999 creditors. The system is still operating.

This $176,000 to be paid to Ballard Spahr law firm with 13 offices and 475 lawyers will nearly deplete the $185,000 in the reserve fund.

State Housing Administrator Charles Horsey said there was a statement in the bond issue that the state was not a guarantee to pay the bondholders if there was a default.

But DeWeese said attorneys may sue the state anyway to cover the losses of the bond holders.

Horsey said the late Gov. Kenny Guinn insisted at the time that the bonds be sold to sophisticated investors and not “mom and pop” individuals because of their speculative nature. They were sold in $100,000 segments.

There was concern at the time that no public transit system had ever made it without a government subsidy.

Horsey said Guinn also insisted that a highly rated insurance company be hired to make sure the bonds were covered. He said Ambac Financial Group, a triple “A” company, was employed. But now Ambac is also in bankruptcy.

One motivation for the state’s sale of the bonds was it would relieve traffic on the Strip. Horsey said the taxicab industry did not oppose the sale because they make a lion’s share of their money on trips to and from McCarran Airport.

Horsey said there has been some talk about the issuance of another bond to extend the monorail to the airport. But he said that would encounter substantial opposition.