LOS ANGELES — A bankruptcy judge has approved the Las Vegas Monorail Co.’s reorganization plan, allowing it to exit Chapter 11 bankruptcy while nearly wiping out the investment made by bondholders.
In the plan that U.S. Bankruptcy Judge Bruce Markell approved Wednesday, senior bondholders will be paid $13 million of the $451.4 million par outstanding.
Markell had denied the monorail’s previous plan to exit bankruptcy in November, finding it unlikely the company would be able to move forward on its proposed payment plan without ending up in Chapter 7, or liquidation.
The big difference? Bondholders get less under the new plan.
“After denial of its prior plan, LVMC took steps to reassess its position,” Markell wrote.
Those steps included obtaining an opinion on the monorail’s reorganization value, and then using that valuation to significantly reduce the reorganization debt contained in its plan, according to the judge.
Markell said the monorail operator abandoned its attempt to preserve the tax-exempt status of interest payments on its reorganization debt.
It took a serious look at its capital expenditures budget and made significant revisions to its equipment purchase and replacement schedule.
Finally, the LVMC operator jettisoned many of the unsubstantiated assumptions underlying its previous confirmation attempt.
The rail operator, a nonprofit corporation, has subcontracted all of its operations to Bombardier Transit Corp., the builder of its railcars.
“So long as the contract with Bombardier is satisfied, the trains run,” Markell said.
The contract extends through 2019.
Monorail construction was financed with $650 million of tax-exempt revenue bonds, but the elevated rail line never came anywhere near generating enough revenue to service the debt.
Under the current plan, the LVMC cancels its outstanding bonds and issues $13 million of debt to replace the $451.2 million of first-tier bonds.
Second- and third-tier bondholders get nothing.
The new bonds will bear a general interest rate of 5.5%, significantly reduced from the earlier reorganization plan, Markell noted.
Though the plan cancels 98% of the existing debt, 90% of the bondholders — some 229 of them — voted on the plan, with 206 voting in favor, according to court documents.
The monorail issued the bonds in 2000 through the Nevada Department of Business and Industry.
The 3.9-mile line opened in 2004, and it filed for Chapter 11 bankruptcy in January 2010.
Ambac Assurance Corp., the insurer of the monorail’s senior debt, filed for bankruptcy a few months later.
Under the plan Markell approved Wednesday, the monorail operator ratcheted back expansion plans, in addition to proposing to repay less debt.
It agreed to adopt a capital expenditure forecast through 2055 and contribute net project revenues into a reserve account to fund projected capital expenditures after funding operations and debt service are paid.
The fifth amended plan offers first-tier secured bondholders $10 million, with interest at 5.5% annually and a default rate of 7.5%, according to court documents.
Unsecured first-tier bondholders would receive $3 million with 3% annual interest until Dec. 31, 2015, and 5.5% interest after that, until maturity on June 30, 2055.
“We are satisfied with his decision,” said Curtis Myles, the LMVC’s president and chief executive officer. “It has taken a long time, but we are satisfied with how he ruled.”
Clearly, the reduction in debt proposed in the new plan made the most difference, he said.
“He was clear about what he used to make his determination,” Myles said. “We took the points he made in his denial on the third amended plan and used it to negotiate with creditors to come up with the fifth amended plan.”
During the first quarter, the monorail carried 994,000 passengers, the first time a quarterly total has ever fallen below one million, according to documents filed on the Municipal Securities Rulemaking Board’s Electronic Municipal Market Acess website.
That marked a 23.9% decrease from last year.
But Myles said overall, things are picking up in Las Vegas — and he expects future monorail financial statements will be rosier.
“If you watch reports on how the hotels are performing in terms of operating levels and net profits, they seem to be doing better,” he said. “If you look at the overall attendance for conferences in Las Vegas, that has come back.”