LOS ANGELES — The motto of the Las Vegas Monorail must be, “If at first you don’t succeed, try, try, try … and try again,” after submitting its fourth amended plan to exit bankruptcy.
A bankruptcy judge is slated to hear arguments March 7 on a disclosure statement for the reorganization plan filed last week in the Nevada district of the U.S. Bankruptcy Court by the monorail’s attorneys.
The disclosure statement will need to be approved by the bankruptcy court before the fourth amended plan is sent to first-tier bondholders for a vote.
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 finance construction of the 3.9-mile line that connects several of the city’s largest hotels.
It filed for Chapter 11 bankruptcy in January 2010 after its ticket revenue fell well short of being unable to repay the debt. Ambac Assurance Corp., the insurer of the monorail’s senior debt, filed for bankruptcy a few months later.
During the March 7 hearing, U.S. Bankruptcy Court Judge Bruce Markell will also schedule a hearing to consider confirmation of the reorganization plan and set a deadline for any objections to confirmation.
Markell rejected the third amended plan on Nov. 18 even though 97% of the bondholders voted in favor of it. He ruled that the plan presented to him could well result in liquidation or the need for further reorganization.
If the judge finds that the debtor failed the feasibility test, he can reject the reorganization plan even if the creditors have granted their consent, Markell said in his order.
The rail operator proposed issuing $40 million in face amount of debt to holders of the $450 million of first-tier bonds through three debt instruments: cash-pay bonds, capital expenditure bonds, and capital appreciation bonds.
Markell found that the third amended plan proposed paying too much debt to allow LVMC to meet its long-term capital needs, and that the monorail’s cash flow could not service and amortize even $40 million of debt bearing a blended interest of 9.5%.
According to its financial statements for the year-end on Dec. 31, 2010, monorail revenue dropped by $6.3 million to $23.3 million from 2008 to 2010, the filing states.
A few days after Markell’s November ruling, Ambac reached a settlement agreement with 73% of the bondholders to purchase the outstanding first-tier bonds through a tender offer designating a fixed amount of cash, according to a disclosure filing on the Municipal Securities Rulemaking Board’s EMMA website.
The offer, which expired on Dec. 19, ranged from $81.68 to $247.34 of cash amount per $1,000 principal amount of its current interest bonds and $1,000 accreted value at final maturity on the capital appreciation bonds. The outstanding first-tier bonds consisted of $325.5 million in current interest bonds and $273.4 million in capital appreciation bonds.
Under the agreement, the first-tier bondholders, 83% of whom participated in the tender offer, retain their rights to receive any new securities and other consideration that may be payable to first-tier bondholders under the rail operator’s plan of reorganization, the filing stated.
The fourth 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.
The monorail operator’s board of directors will adopt a capital expenditure forecast through 2055 and the reorganized operator will contribute net project revenues into a reserve account to fund projected capital expenditures after funding operations and debt service are paid, the filing states. The bondholders also will be allowed to name two directors to the board. The plan reduced the reserve fund amount from $2 million to $500,000.
An independent auditor’s report produced by Las Vegas-based accounting firm Kafoury, Armstrong & Co. that reviewed financial statements for the year ending Dec. 31, 2010, found “substantial doubts about the company’s ability to continue as an ongoing concern,” given the defaults on the bond payments. The document was filed on EMMA last week.