Judge rejects Las Vegas Monorail bankruptcy plan

The Las Vegas Monorail, which has wrestled with losses since it opened in its current form seven years ago, may be nearing the end of the line.

On Friday, U.S. Bankruptcy Court Judge Bruce Markell rejected the monorail's plan to exit Chapter 11 bankruptcy because the terms "doom it to failure, if not in the next few years then certainly by 2019." As a result, the plan fell short of the legal requirements for judicial approval, he concluded.

While monorail management projected that it could manage a radically slashed debtload in the near term, it admitted that it would come up $38.4 million short in eight years, mainly because of balloon payments.

"The monorail essentially asks the court to allow it to float along until it sinks, suggesting that when it ultimately sinks, the court need not concern itself with how creditors will make it onto the life raft -- or even whether there will be a life raft available," Markell wrote. "The court declines this invitation."

In doing so, he brushed aside nearly unanimous creditor support for the plan as "largely irrelevant."

The plan emerged from two years of negotiation and arm twisting both in and out of court. Retired utility executive Donald Shalmy, chairman of the nonprofit monorail's board, said it was too early to announce what the next move would be.

But at a Monday hearing, attorneys in the case raised the prospect that the alternatives to no repayment plan would be to sell it, although buyers are not lining up for something as unusual as a freestanding monorail, or shut it down. In the latter case, there is not enough money on hand to demolish the elevated tracks and stations.

The line follows a 3.9 mile course from the MGM Grand to the Sahara, roughly parallel to the Strip a few hundred yards to the east.

JUDGE EXPRESSES SKEPTICISM

Beyond the numbers, Markell wrote that monorail CEO Curtis Myles and outside adviser Matthew Kvarda had not given "credible reasons" why a more optimistic outlook that surfaced at the last minute was not grafted into the core financial projections. In addition, he expressed skepticism that any upside potential would happen as laid out.

Monorail management projected that the combination of new riders going to and from a reopened Sahara, Caesar Entertainment's Project Linq retail and entertainment center, plus becoming eligible for federal funding could plug the $38.4 million gap. Still, no firm money source was identified for the critical goal of extending the monorail to McCarran International Airport.

The monorail has made a profit on operations, although revenues and ridership have declined steadily for several years. However, it could never cover interest or principal payments on the bonds sold a decade ago to expand what had been a much smaller line.

The reorganization plan proposed replacing the bonds, now amounting to $658 million, with three IOUs that total $40.4 million. To reach that point, the monorail and different groups of bondholders not only had to reach agreement here but in Minnesota and Wisconsin. There bondholders fought over the leftovers of a failed insurance company that had backed one set of bonds against default.

INFRASTRUCTURE ISSUES

Not only did the monorail fall short on debt service, it also did not know where it would find the millions of dollars it will need in the coming decade to replace worn or obsolete infrastructure such as station doors or ticket vending machine software.

During the first nine months of this year, the 3.8 million riders marked a 3.2 percent drop from the same period in 2010, while the $17.4 million in revenues were down 2.1 percent. The monorail had to deal with the closing of the Sahara in May, although the number of conventioneers, a big source of riders, has risen.

Ridership, however, is only half of what it was in 2005, the first full year of renewed operations, while revenues have dropped by a fourth. The monorail has raised fares to try to squeeze more money out of a declining base.

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