Monorail plan off to next stop to reduce debt

After being stuck in a holding pattern since August, the Las Vegas Monorail will now roll forward on its plan to slash more than 90 percent of its crushing debt load.

U.S. Bankruptcy Judge Bruce Markell on Monday approved sending to creditors the disclosure statement that explains the plan, and why the monorail had to file a Chapter 11 bankruptcy. Once creditors vote on the plan in August, the case will come back to Markell on Sept. 14 for a final ruling.

If the deadline were today, the plan might well lose. Las Vegas attorney Nile Leatham, representing investors that hold $451.5 million in senior bonds, said his clients would reject the plan because a number of key details remain up in the air. The monorail wants to pay the senior bondholders $44.5 million in three different sets of IOUs.

However, said Leatham, "We continue to negotiate and I am guardedly optimistic it will result in a resolution."

Even if that happens, the Rubik's Cube complexity of the case does not guarantee approval.

One group of junior bondholders holds legal rights that might allow them to derail the case, even though they would receive no payout. In addition, litigation in two others states also affects the monorail.

Investors hold two sets of junior bonds with a face value $207.3 million. When combined with the senior bonds, the monrail proposes to repay only 3 percent of its $658.8 million total debt.

The bonds were issued in 2000 to purchase the existing monorail and extend it to its current 3.9 miles. Because the ridership has fallen well short of initial predictions, the monorail has never generated enough revenue to cover both operating expenses and bond payments, leading to the bankruptcy filing early last year.

Ambac Financial, which insured the senior bonds against default, has agreed to pay more than $190 million in cash and notes to settle its obligations. Ambac itself failed last year under the weight of bad investments.

But it is far from clear how the money would be divvied up, with different groups staking claims.

"We are trying to get out of that fight any way we can," said monorail attorney William Noall.

The monorail filed its reorganization plan in August, but then waited while Ambac-related issues moved through court elsewhere.

In making the case for second-tier bondholders, Minneapolis attorney Patrick McLaughlin argued that the monorail Chapter 11 involved stripping away debt without reorganization.

"The same people who brought you this disaster are going to be in charge going forward," he said, referring to the management and directors of the nonprofit monorail.

Markell decided to put off until September several issues raised in the run-up to Monday's hearing, such as the legality of repaying creditors at different rates.

Even if the plan goes ahead, it merely buys time for the monorail rather than creating a permanent solution. In 2019, bills for major overhauls such as replacing the ticket vending machines start coming due. Without fresh funds, the monorail will not have the tens of millions of dollars it needs for the work.

Contact reporter Tim O'Reiley at toreiley@reviewjournal.com or 702-387-5290.