Officials argue monorail no arm of government

Operators of the Las Vegas monorail have reversed their position that the struggling train is an "institutionality" of the state but maintain they are fit to file Chapter 11 bankruptcy to restructure its debt.

The Las Vegas Monorail Company, which runs a 3.9-mile route between the Sahara hotel-casino and the MGM Grand, claimed $500 million to $1 billion in debt in court documents submitted after the company's January bankruptcy filing.

The argument before U.S. Bankruptcy Judge Bruce Markell on Wednesday was whether the appropriate solution to resolve the debt troubles is a Chapter 11 filing or protection under Chapter 9, a lesser-known form of bankruptcy that protects creditors and is reserved for municipalities.

"The point is not that there is not a remedy," said attorney William Smith, an attorney representing Ambac Assurance Corporation, which insured $450 million of the bonds issued to build the monorail. "The point is there is a different remedy (from Chapter 11)."

Markell did not make a ruling Wednesday.

Attorney Gerald Gordon, who represents the monorail company, said the monorail filed for Chapter 11 bankruptcy because Nevada does not allow Chapter 9 filings. Under the U.S. Constitution, Chapter 9 may be filed only if states authorize it.

And, he said, the monorail is not eligible for Chapter 9 because it is not an "institutionality," a legal term that means an arm of the state.

"There are a series of rights the governor has, clearly," Gordon said, referring to Gov. Jim Gibbons' final approval of the monorail company's annual budget and nominated board members. "That doesn't mean the state is so intertwined with this company that it becomes an institutionality."

Gordon's argument appears to contradict the company's stance when it successfully sought $650 million in tax-exempt bonds in 2000. The tax certificate for the bond issuance said: "The borrower is an instrumentality of the State of Nevada."

Therefore, according to Smith, the monorail should file Chapter 9.

Representatives of Ambac think monorail representatives claimed to be an arm of the state to lure investors, who might have felt more comfortable if the project had the state's backing.

Under Chapter 11, some debt can be eliminated, which means creditors would be paid little or nothing. That could dissuade potential insurers for the monorail's remaining bond tiers, which amount to $200 million, Ambac officials said.

Gordon theorized that Ambac filed the opposition because it was against the bankruptcy option from the beginning.

"If we could roll back time, everyone would agree don't do it (build the monorail)," Gordon said. "What do you do now? That needs to be the discourse and the discussion amongst all the parties."