Las Vegas Monorail
Las Vegas Monorail

LOS ANGELES — Las Vegas Monorail bondholders have until April 7 to take advantage of an Ambac tender offer that offers a better-than-anticipated recovery.

Holders of the bonds were subjected to dual bankruptcies, first by the Las Vegas Monorail Co. and then by Ambac Financial Group, Inc., holding company for bond insurer Ambac Assurance Corp., the insurer of the monorail's senior bonds.

The monorail, structured as a nonprofit enterprise, issued $650 million of tax-exempt revenue bonds in 2000 through the Nevada Department of Business and Industry to build the 3.9-mile line linking several of the city's largest hotels. The line opened in 2004, and it filed for Chapter 11 bankruptcy in January 2010 after its ticket revenue fell far short of debt service requirements.

Ambac filed for bankruptcy a few months later.

Under its bankruptcy exit plan in May 2012, the monorail operator canceled its outstanding bonds and issued $13 million of debt to replace the $451.2 million of first-tier bonds. (Second- and third-tier bondholders got nothing.)

That's where bond insurance, theoretically, would have stepped in but for Ambac's bankruptcy.

Unlike most of the public finance debt Ambac wrapped, the monorail bonds were allocated to a segregated account of obligations with large expected losses, such as credit default swaps and mortgage-backed securities, which the Wisconsin Insurance Commissioner placed into rehabilitation in March 2010. The rehabilitation plan was amended in May.

Assets supporting the general and segregated accounts are held by Ambac and funding for segregated account claims and expenses is provided through a reinsurance agreement.

A Wisconsin court approved a motion in August 2013 filed by the rehabilitator of Ambac's segregated account to permit the insurer to make cash payments in excess of 25%, the amount it had been paying on principal and interest claims from the account since a September 2012 court decision.

Ambac increased the recovery rate for LVMC bondholders to 45% in November 2014.

Ambac extended the tender offer March 6 to holders of $28.5 million of current interest bonds and of capital interest bonds with $32.9 million of accreted value, representing the remainder of the monorail debt not already owned by the insurer.

The offer ranges from 24 cents on the dollar for 2029 capital appreciation bonds to 79.8 cents on the dollar for 2016 CABs.

"The way traders were looking at it, if you held the original bonds, you would probably get 25 cents on the dollar for claims," said Ted Ruddock, a senior vice president with Raymond James. "It potentially had a long-tailed obligation to segregated, and if there was excess money, you could get paid out somewhere north of 25 cents on the dollar."

Participants in the tender offer release Ambac from any remaining obligations under the policies.

The announced increase in payout in November, and the tender offer, which offers his clients' 2016 maturity bonds an 80% recovery, is much better than anticipated, he said.

Anyone who bought into the bonds a year ago has likely made out well, he said.

"At no time did anyone say they were getting ready to take these out," Ruddock said. "Clearly, the market didn't know, or the bonds would not have been trading in the 40s."

The new bonds issued by the Las Vegas Monorail in connection with its emergence from bankruptcy do not benefit from any financial guarantee insurance policy of AAC or the segregated account, according to the tender offer. Neither Ambac nor the segregated account has any obligations with respect to those new LVM bonds.

The amount of any payment by the segregated account under the Ambac policies will be reduced by the amount, if any, of payments made by Las Vegas Monorail Co. for its new bonds issued to bondholders who had not sold their insured monorail bonds to Ambac at the time of issuance of the new monorail bonds, regardless of whether such holders continue to own such new monorail bonds.

The offer to purchase is scheduled to expire at 5:00 p.m., EPT, on April 7, 2015, unless extended or terminated.

MacKenzie Partners, Inc. is the information agent and Wilmington Trust, National Association, is the depository for the tender offer.

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