Las Vegas Rail Plan Would Give Senior Bondholders Little Skin

SAN FRANCISCO — In one of the most complicated bankruptcy cases involving municipal debt, Las Vegas Monorail Co. bondholders are battling on multiple fronts to try and ­recover some of their money.

Nothing is settled, but it appears certain that senior bondholders will take a large haircut from more than $450 million in par value they hold while lower-ranked investors will get nothing. The payments to top-tier bondholders hinge on the outcome of the court proceedings, a rehabilitation plan for bond insurer Ambac Assurance Corp., also in bankruptcy, and a further potential settlement between a majority of bondholders and Ambac.

The monorail filed for Chapter 11 bankruptcy in January 2010 after being unable to repay tax-exempt revenue bonds issued through the Nevada Department of Business and Industry in 2000. The money financed construction of the four-mile-long elevated monorail, which links hotels along the Las Vegas Strip. Ridership on the line ran well below projections.

“Throughout the reorganization process, the monorail system has continued to operate seamlessly,” spokeswoman Kristen Hansen said in an e-mail. “The system continues to earn enough revenues from fares to pay operating expenses.”

In the latest turn in the case, creditors are voting this month on the debt-restructuring plan that would slash the majority of the nonprofit organization’s $700 million debt load. U.S. Bankruptcy Judge Bruce Markell will consider the plan next month after the vote is finished.

Several lawyers involved in the case declined to comment on the record, but they all agreed this is one of the most complicated Chapter 11 bankruptcy cases they have worked on. Under the exit plan, the monorail will pay first-tier bondholders roughly 9% of the $450 million they are owed by issuing three series of bonds. The lower-tier bondholders will get nothing for their $200 million of paper.

The plan, already revised three times, is the result of negotiations between the monorail and senior bondholders, said a person involved in the case who declined to be named. The lower-level bondholders are expected to reject the plan.

The trustee for the bonds, Wells Fargo Bank NA, objected to the original reorganization plan but worked with the monorail to amend it, according to filings with the Municipal Securities Rulemaking Board’s EMMA website.

“Wells Fargo does not make any recommendation that holders vote for or against the plan of reorganization,” Gavin Wilkinson, vice president of corporate trust services at Wells Fargo, said in a statement. “Our goals throughout this difficult process have been to ensure that the first-tier bondholders recover all of the available value of the Las Vegas Monorail, whatever that value is, and to preserve and enforce the claim under the Ambac bond insurance policy.”

As it stands, the first-tier bondholders would get $15 million in cash-pay notes at a 10% interest rate maturing in 2019 that would have capitalized interest through 2014. They also would get capital expenditure bonds worth $19.5 million at 10% interest that will accrue but will not be paid until they mature in 2019. And 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.

Ambac insured all of the first-tier tax-exempt bonds backed by monorail revenues, providing the debt at the time of issuance with triple-A ratings. Ambac’s parent, Wisconsin-based Ambac Financial Group Inc., filed for Chapter 11 partly due to its insurance of mortgage-backed securities and credit default swaps.

During its restructuring, Wisconsin’s insurance regulator placed Ambac Assurance’s insurance policy on the monorail bonds into a walled-off account along with other troubled policies, covering around $50 billion worth of securities.

As part of a rehabilitation plan worked out between Ambac and the Wisconsin insurance commissioner, the monorail bondholders would be paid out 25% in cash and 75% in surplus notes. The claims would only be paid when the bonds are due.

A Wisconsin court has approved the rehab plan but it has yet to be implemented because of several hurdles, including disputes between Ambac Assurance and its parent and with the Internal Revenue Service over claimed operating losses.

The trustee is also continuing its appeal of the Wisconsin regulator’s decision to place the monorail bonds in the walled-off account, according to EMMA filings.

There is also a settlement under negotiation between Ambac Assurance, the Wisconsin insurance commissioner and a majority of monorail bondholders.

The deal would pay bondholders roughly 20 cents on the dollar, or around $111 million, plus the surplus notes and whatever is gained through the bankruptcy claim with expenses deducted. The final amount depends on how many bondholders agree to the deal. An earlier settlement negotiated by the trustee Wells Fargo and the majority of bondholders, but opposed by Eaton Vance, fell through.

As debt holders take a huge haircut, the nonprofit plans to borrow more. The monorail aims to raise $12 million by 2019 to build two more stations as well as spend $23 million on future capital expenditures, according to court documents.

The money is needed “so that the monorail does not cease to operate sometime in the next eight years,” according to court papers. It said its ability to stay afloat is contingent on its ability to raise revenue through expansion, federal funds or private financing.

At the end of July, first-tier monorail bonds maturing in 2040 sold for 18.40 cents on the dollar compared to an initial price of 93.58, according to trade data on EMMA. The monorail’s capital appreciation bonds maturing in 2029 sold for 3.66 cents on the dollar on July 20 compared to 18.94 during the initial offering.

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Bankruptcy Transportation industry Nevada
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