Financial analysis grimmest ever for Las Vegas Monorail


Looming financial default now "appears probable" for the Las Vegas Monorail, according to the bleakest financial assessment to date of the struggling rapid transit line released Tuesday.

The analysis by Fitch Ratings, a New York City-based credit rating firm, also plunged the monorail's bond rating further into "junk" status while predicting the monorail won't be able to pay its debts by 2010.

Officials at the Las Vegas Monorail Co. dismissed concern that either the monorail or a planned $500 million extension to McCarran International Airport are in jeopardy.

"The new Fitch rating will have no effect on the day-to-day operation of the Las Vegas Monorail or its expansion plans," Ingrid Reisman, vice president of the Las Vegas Monorail Co., said in a prepared statement.

But last year, a Fitch analyst said the monorail's bond rating at that time would make it difficult for the rail line to gain financing for the McCarran extension.

In downgrading the privately run $650 million monorail to "CC" status from "CCC," Fitch claimed the high-tech train running a four-mile route behind the Strip's east side has been unable to entice enough tourists out of buses and taxicabs.

"Strong competition from buses on the Las Vegas Strip and taxis continue to contribute to the monorail's deteriorating financial position," Fitch said in its report. "Monorail demand is weaker than expected, in part due to the continued lack of aggressive marketing partnerships with the casinos."

Fitch said it expects cash reserves now covering losses "to only last, at best, three years," to 2010.

Last year, the credit rating firm expected the monorail to start having problems paying off some low-tier bonds as soon as 2008 and entirely run out of cash by 2012, absent a financial turnaround that doesn't appear imminent.

Fitch said it expects the monorail to burn through its reserves "slightly more rapidly than was previously estimated."

The monorail has approximately $69 million in reserves on hand, the firm estimated, down from $89 million last year.

In its report, Fitch said its pessimism stems from "continued declines in monthly revenues" in the first half of 2007, caused by a combination of ridership losses and fare discounts.

Those discounts dropped the average fare collected from riders to $3.11 last month, down from $4.44 in the same month in 2006. That offset a 26 percent jump in June ridership from 2006 to 2007.

"With higher than expected sensitivity to the fare increase and an overall lower base of ridership, fare revenues continue to be insufficient to meet the monorail's debt service obligations," Fitch's report said.

And while June's average daily ridership of 23,790 passengers was the highest since 2005, traveler volume in the first five months of 2007 was down by almost 3 percent from the same period in 2006.

When it first opened in 2004, the monorail was projecting more than 50,000 daily riders.

"Given the trend in the first six months, Fitch believes there is a strong likelihood that total fare revenue for 2007 will be lower than last year."

The fare discounts follow an increase in the base adult one-way fare to $5 from $3 in 2006. Fitch said the fare hike "has been largely unsuccessful" because of an immediate, persistent ridership drop of approximately 30 percent it spawned.

"Fitch cannot rule out the possibility of additional fare adjustments, including reductions, to build ridership with the goal of establishing a firm base level of demand with the potential for further growth," the report said. "Fitch believes the monorail retains some ability to increase ridership levels, if it is perceived that the monorail provides a superior competitive means of transportation."

If the monorail should go bankrupt, taxpayers aren't on the hook for the tab.

No government entity is obligated to take over the monorail or its debt, and AMBAC Assurance Corporation of New York insured the monorail's bonds. And a contingency fund exists to tear down the line, should it close.

In her statement, Reisman said she anticipates the rest of 2007 "will better reflect the true effectiveness of our recently expanded worldwide ticket distribution network" via hotels and the Internet.

She touted the monorail as a necessary part of the Las Vegas Valley's transportation network.

"It is important to note that Las Vegas has outpaced itself with unprecedented growth," Reisman's statement said. "The fact that the privately funded Las Vegas monorail has transported more than 24 million visitors along the resort corridor ... indicates that it is and will continue to be a part of the long-term transportation solution."

 

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