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Las Vegas Monorail Deal Nears

FEB 4, 2011 7:11pm ET
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ALAMEDA, Calif. — Most holders of $451.5 million of first-tier revenue bonds issued for the Las Vegas Monorail are prepared to accept $111 million up front and release Ambac Assurance Corp. from its exposure to the defaulted bonds, the bond trustee said in a disclosure filing.

Policyholders would also receive interest-bearing notes to be paid in the future from Ambac surpluses, said the disclosure notice trustee Wells Fargo posted last week on the Municipal Securities Rulemaking Board’s EMMA site.

The Las Vegas Monorail Co., a nonprofit organization, filed for Chapter 11 bankruptcy in January 2010 after coming nowhere near close to being able to repay tax-exempt revenue bonds issued through the Nevada Department of Business and Industry in 2000. The proceeds financed construction of the four-mile long elevated monorail, which links hotels on the Las Vegas Strip.

The first-tier bonds were wrapped by Ambac Assurance, providing the debt with triple-A ratings at the time. Ambac Assurance parent Ambac Financial filed for Chapter 11 bankruptcy in November, after its bond insurance unit ran into serious trouble because of decaying credit quality in its structured finance policies.

As Ambac unraveled, its regulator, the Wisconsin insurance commissioner’s office, in March 2010 placed the monorail credit, along with about 700 other of Ambac’s most troubled policies covering a net par outstanding amount of about $50 billion, into a walled-off account. The monorail bonds were the largest municipal bond issue to be placed in the segregated account, which is dominated by student loan securities, mortgage-backed securities, and the like.

“The trustee believes that, compared to the alternatives of either continued litigation with the bond insurer or treatment under the rehabilitation plan, the commutation would provide the bondholders a meaningful recovery that is more certain than the possible outcomes under the other available alternatives,” Wells Fargo wrote in its disclosure statement.

At first blush, the commutation settlement to which Wells Fargo has tentatively agreed does not appear dramatically different from the Wisconsin insurance commissioner’s overall rehabilitation plan, approved Jan. 25 by the Dane County Circuit Court.

Once the plan takes effect, holders of permitted policy claims will receive 25% of their permitted claims in cash and the balance in surplus notes bearing interest at the rate of 5.1% per year with a scheduled maturity on June 7, 2020, according to a news release from insurance commissioner Ted Nickel.

In its disclosure filing, Wells Fargo said the holders of 73% of the bond principal have agreed to the settlement, along with Ambac and the commissioner.

The trustee has filed a court petition in Minnesota, where its trust business is headquartered, asking the district court in Hennepin County to ratify the settlement agreement.

“Because the commutation would apply to all bondholders, the trustee believes that this court should consider not only the views of the settling bondholders who support the commutation, but also the concerns of those bondholders who do not support it, and, after hearing and considering all of these views, instruct the trustee with respect to the commutation,” its petition said.

A hearing is scheduled March 2.

Under the settlement, the bondholders will retain the right to whatever payments the Las Vegas Monorail makes upon the conclusion of its bankruptcy case.

The monorail isn’t proposing to pay them very much at all. The proposed reorganization plan it filed in the U.S. Bankruptcy Court for the District of Nevada calls for the issuance of $18.5 million of notes to settle $452.5 million of first-tier bond debt. The holders of $200 million of second- and third-tier debt would get nothing.

According to court filings, the monorail company and the first-tier bond trustee have agreed to delay a hearing on the bondholders’ claims until after the Ambac settlement is finalized.

“The Las Vegas Monorail Co. is still in discussions with creditors and we are unable to discuss details at this time; however, the system continues to operate as normal,” spokeswoman Kristen Hansen said in an e-mail.

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