The Las Vegas Monorail, now six years out of bankruptcy, is talking about issuing bonds in order to fund a one-mile rail extension at a cost estimated at $110 million.
The proposal would extend the current 3.9-mile route on the Las Vegas Strip from the MGM Grand to the Mandalay Bay and Luxor hotel casino properties.
The rail company is seeking financing that will allow it to refund $13 million in outstanding bonds in addition to paying for the extension, according to a letter to the trustee from Curtis Myles, the Monorail’s president and chief executive officer, that was posted Dec. 1 on the Municipal Securities Rulemaking Board’s EMMA website.
“The company is not able to predict whether such a financing will be feasible or, if feasible, the timing of any such financing and refinancing,” Myles wrote in the letter.
A spokeswoman declined to answer questions regarding the status of efforts to finance the project.
The Monorail received a series of favorable approvals during the Clark County Commissioners Nov. 21 meeting.
At the meeting, the commissioners agreed to extend an agreement through March 31 that allowed the rail company to use a $6 million escrow fund to pay for engineering costs for the project. Under the agreement, if project financing hasn’t closed by June 30, the rail company will have to begin repaying the escrow account in monthly payments of $16,666 that include 4% interest.
The county also agreed to contribute $4.5 million from hotel taxes over the next 30 years for the project, although the amount is not guaranteed and has to be allocated annually.
During the November commission meeting, Myles said the rail company needs the $4.5 million allocation in order to receive bond ratings.
At the time of the bankruptcy, company officials attributed the financial woes to overly optimistic ridership and revenue projections.
Ticket sales comprise the majority of the monorail’s revenue. So when farebox sales failed to meet expectations, the rail company could not make bond payments and wound up in bankruptcy.
The company's debt was reduced from $650 million to $13 million after if filed for bankruptcy protection in 2010.
Projections in a URS Greiner Woodward Clyde Group study included in the 2000 bond documents estimated ridership at 19.5 million for 2004 with expectations that number would grow to 22.6. Combined revenues for ads and fare revenues were anticipated to top $95 million.
Total ridership for 2016 was 4.9 million and revenues were $21.4 million, according to data published on the rail line’s website. Ridership peaked at close to 10 million in 2005 and has been never recovered since the recession.
Though bankruptcy has not prevented issuers from gaining market access, investors will be looking closely at whether the ridership and rates will be enough to pay the bonds, said a bankruptcy and bond attorney, who declined to be named.
Growth in traffic in the region indicates a need for the service, but the extension might not deliver enough revenue to satisfy the capital market's need for a return, he said.
The uncertainty in the $4.5 million promised by county commissioners also may undercut the sales effort.
A promise by the county to "consider" allocating the money if the rail company has a shortfall each year isn’t enough to reassure investors in a post-Detroit bankruptcy world, he said.
“The fact they have been in bankruptcy before — in other countries it is a badge of shame you don’t escape — but in this country the process is set up so companies can emerge and reorganize,” he said. “The setup is such so they shouldn’t be punished.”
While a prior bankruptcy doesn’t rule out the deal, he said, investors are more likely to scrutinize payments dependent on fare box revenues.
“The market would look at it fairly in terms of is this going to work, but it would need long term investors — and it really comes down the numbers,” he said.