U.S. judge questions Las Vegas Monorail reorganization plan

When all the creditors sign on to a company's Chapter 11 bankruptcy reorganization plan, that often means the case is on a smooth road to completion.

After all, the thinking goes, if the people absorbing the losses agree to the terms, known in bankruptcy lingo as taking a haircut, then it should be OK with everyone else.

Nevertheless, even though investors holding $658.9 million in bonds that paid for building the Las Vegas Monorail have signed on to a deal that sticks them with a greater than 90 percent loss, the nonprofit company's chance for exiting Chapter 11 in the near future now hangs by a thread.

"There is a key person you seem not to have taken into account and that's me," said U.S. Bankruptcy Court Judge Bruce Markell noted during a daylong hearing on Monday.

Markell had zeroed in on a section of the U.S. Bankruptcy Code that mandates that a Chapter 11 plan "is not likely to be followed by a liquidation, or the need for further financial reorganization." Although he spent several hours sparring with monorail attorneys and cross-examining its witnesses, he deferred a decision to an unspecified future date.

The monorail proposes slashing the debt to $44.5 million split between three IOUs. However, Markell worried that this did not put the 3.9-mile transit line on a solid footing but took the financial problems and "kicked the can down the road." The most glaring deficiency, in his view, was the monorail management's own projections that they would come up $38.5 million short by 2019 in making the payments even on the new, stripped-down debt.

Also, the monorail must come up with at least $20 million more to replace equipment such as station doors and software for the ticket vending machines.

Further, he expressed discomfort that estimated value of the monorail was only about half of the new debt.

After Markell had put his concerns in writing on Nov. 1, monorail management quickly assembled a three-point answer. If the Sahara reopened, as the owner has at least started planning, along with Caesar Entertainment Corp.'s Project Linq shopping and entertainment center planned for the property south of the Flamingo, the extra passenger revenues would cover about half of the shortfall, said monorail CEO Curtis Myles.

By drastically reducing debt, Myles suspects that the monorail would become eligible for federal grants and subsidies off limits until now. This, he projected, would cover the rest of the gap.

"This isn't some type of visionary scheme," monorail attorney Bruce Noall said. "This gets us at least to 2019," when bondholders would be able to decide whether to keep the line going or shut it down.

Nevertheless, Markell questioned Myles closely about the foundation for his projections, noting that the monorail wound up in bankruptcy because past outlooks had turned out to be way too high.

Moreover, he took a jab as the estimated $500,000 a year budgeted for Myles' salary and the board of directors' fees despite several provisions in the plan that limit management's autonomy.

"It seems to me that paying a half million a year for strategic thinking (is a lot) for a plan that is going to pay for itself," Markell said, referring to duties outlined for the board and Myles.

Attorney Susan Freeman, representing the trustee for one set of bondholders, explained that the various elements comprised a package, which took nearly two years to hammer out, better than any of the alternatives including shutting down the line.

"(Bondholders) are willing to invest the money. They are willing to take the risk," she said.

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