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Las Vegas Monorail Hearing Stalls

LOS ANGELES — A confirmation hearing on the Las Vegas Monorail’s plans to exit bankruptcy that had been slated this week was postponed after bondholders, the insurer, and the issuer all balked.

The hearing had originally been scheduled for Friday, but has been postponed until Nov. 14 while the debtor and bondholders continue to work out a repayment plan, according to a disclosure filing that bond trustee Wells Fargo posted on the Municipal Securities Rulemaking Board’s EMMA website.

The senior bondholders voted to reject the reorganization plan filed by the nonprofit that operates the four-mile elevated monorail connecting some of the Las Vegas strip’s hotel casinos.

Additionally, bond insurer Ambac Assurance Corp. and the conduit issuer, the Nevada Department of Business and Industry, objected to the plan.

It’s the third reorganization plan the monorail’s attorneys have submitted.

Senior bondholders would have received a fraction of the more than $450 million in par value they hold while lower-ranked investors would be wiped out.

The monorail operator originally filed Chapter 11 bankruptcy in January 2010, unable to repay the debt on more than $600 million of tax-exempt revenue bonds issued in 2000.

The matter became even more complex when Ambac filed for bankruptcy a few months later.

Curtis Myles, the monorail’s president and chief executive officer, said in a statement that the bankruptcy filing will affect neither system operations nor hours of operation or customer service.

The monorail system recently carried its 40 millionth rider along with nearly 135,000 passengers during the four-day Consumer Electronics Show held at the Las Vegas Convention Center, Myles said.

“The current economic downturn, including a 30% decline in convention traffic to Las Vegas, has increased the financial strain on the monorail, like it has with every other tourism-dependent Las Vegas company,” Myles said.

“Despite these challenges, the Las Vegas Monorail generates sufficient revenue to pay its operating expenses as well as a portion of its finance costs, and that will make it possible to restructure the company’s debt through the Chapter 11 process.”

Monorail officials anticipated $21.4 million in revenues and $21.2 million in expenses in their 2011 budget projections, leaving only $456,424 available to cover $55 million in scheduled debt-service payments, according to the budget documents.

Those estimates also project a $78 million shortfall.

Since the monorail receives no public funding, the bankruptcy filing does not affect the state of Nevada’s rating or finances, according to Myles.

The principal payments and interest on the first-tier bonds are insured by Ambac, which was staggered by declines in its structured finance portfolio.

On March 24, 2010, Wisconsin’s commissioner of insurance commenced rehabilitation proceedings by placing $35 billion of Ambac’s most toxic holdings in a segregated account administered by his office.

A circuit court judge in Dane County, Wis., issued orders that prohibit payment on any claim against the segregated account, including claims on the surety bond and insurance policy, and further prohibit any enforcement action against the segregated account.

The monorail bonds are the only municipal debt in the segregated account.

Under the rehabilitation plan approved by the insurance commissioner that has yet to take effect, Ambac has proposed payment plans on the insurance claims. Under that plan, Ambac would receive money due bondholders under the still-to-be-agreed-upon monorail plan that the bankruptcy judge would need to approve.

The insurance commissioner and Ambac have not yet decided on when the plan will take effect. The court ruling did not include an effective date for the rehabilitation plan.

Holders of securities in the segregated account, including Wells Fargo on behalf of monorail bondholders, have appealed the rehabilitation plan in Wisconsin state court, according to the recent disclosure filing.

In the monorail bankruptcy, the third revised plan rejected by creditors would have given first-tier bondholders $15 million in cash-pay notes at a 10% interest rate maturing in 2019 that would have capitalized interest through 2014.

Investors also would have received capital expenditure bonds worth $19.5 million at 10% interest that would accrue but would not be paid until they mature in 2019.

Lastly, $10 million of capital appreciation bonds — essentially a zero coupon with an 8.315% interest rate maturing in 2055 — would be distributed. The potential payout has become more complicated because bankrupt Ambac insured the senior bonds.

Attorneys for Ambac and the segregated account filed an objection to the monorail’s reorganization plan, arguing that “the new indenture would improperly eliminate their rights granted under the senior indenture without their consent,” according to disclosure filings.

The Nevada Department of Business and Industry filed an objection, saying it has a security interest in net project revenues and money in the debtor’s bank accounts on par with the trustee, and that its attorneys’ fees and costs must be paid for any plan to be confirmable.

In the plan submitted by monorail’s attorneys, the issuer’s attorney fees would not be paid.

With the failed vote from the majority bondholders and objections from the insurer and issuer, the monorail’s attorneys agreed to postpone the reorganization hearing on the third amended plan until mid-November, according to the disclosure filing.

If an agreement can be reached, the bond trustee expects that the bankruptcy court judge would allow creditors to vote on the amendments and a confirmation hearing could take place in November, the filing stated.

Though a decision on the bulk of the reorganization plan has been postponed until mid-November with the monorail’s agreement, the judge will hear arguments this Friday on other issues related to a settlement resolving disputes on the treatment of second-tier debt service reserve fund.

The dispute arose over whether that fund should be used to pay debt service on the second tier first, rather than to the senior bondholders, because of the name of the fund.

However, the parties reached an agreement that $400,000 of the fund would be transferred to the senior bondholders trustee to pay the first trustee’s fees and expenses and the remainder would be dispersed to the second-tier bondholders’ trustee, U.S. Bank & Trust.

The second trustee has already tapped $350,000 of that fund.

Filings didn’t indicate how much the reserve fund totaled.



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