Las Vegas Monorail to shed more debt in latest plan
3 February 2012
Las Vegas Monorail Co. proposed a new plan Thursday to emerge from bankruptcy that calls for the system to operate in the black later this decade and even to expand.
The latest plan is the fourth to be offered by the system since its bankruptcy filing in January 2010. The bankruptcy filing was made because the monorail, facing disappointing ridership numbers, was unable to service its bond debt of $650 million.
The company has also been hurt by the recession and the closure of the Sahara hotel-casino, with monorail fare revenue in 2011 of $22.4 million being down from $27 million in 2009.
The new plan was drawn up after U.S. Bankruptcy Judge Bruce Markell on Nov. 18 rejected the third reorganization plan on the table, saying it doomed the nonprofit monorail to yet another financial failure by encumbering it with too much debt.
Thursday’s plan reduces the level of debt the monorail company would carry from $44.5 million under Plan No. 3 to just $13 million.
The monorail’s latest analysis found that its “reorganization value” is just $13 million — meaning its debt under its new plan won’t exceed its value.
Plan No. 4 also revises how much the system will spend in the coming years on replacement and repair of its trains and other equipment, an expense known as “CapEx” for “capital expenditures” and “CARP” for “Capital Asset Replacement Plan.”
CapEx under this strategy is estimated to cost $24.5 million from 2019 to 2028, down from an earlier projection of more than $108 million. CARP from 2012 through 2024 is projected to cost $39.8 million.
The reduced capital spending would be accomplished by “extending the useful like of key system components through 2028,” the new plan says.
A financial projection filed with the plan shows that with reduced interest expenses the system would generate manageable losses of under $500,000 a year through 2015, and then generate profits in the 2016-19 period.
In another departure from the rejected plan, Plan No. 4 doesn’t include any projections for extra monorail revenue from the potential reopening of the Sahara, the opening of Project Linq behind the Flamingo and Imperial Palace hotel-casinos and potential government grants. Markell, in rejecting the third plan in November, had said those revenue projections weren’t solid enough to be used as a basis for plan approval.
“While the initial projections and expectations for the monorail were flawed, that does not mean that the monorail cannot be restructured so that it can continue to operate, meet its needs for the replacement and repair of capital assets and pursue expansion of its system,” monorail attorneys at the Las Vegas law firm Gordon Silver wrote in court papers Thursday explaining the new plan.
Markell has not yet scheduled a hearing on whether to confirm the new plan. In the interim, creditors and other parties will have the opportunity to weigh in with expressions of support or objections.
Bondholders faced steep losses under Plan No. 3 and their losses would grow under Plan No. 4, but it’s unknown if they’ll object.
In the meantime, the monorail is set to continue pursuing a strategy in which it may try to connect with a government agency so it can be eligible for federal grants and potentially expand, perhaps to McCarran International Airport or to areas where there are gaps in its system such as the area around Wynn Las Vegas and the Sands Expo Center.
The monorail, with seven stations, now stretches from Sahara Avenue to the MGM Grand along Paradise Road and the backside of hotels on the east side of the Las Vegas Strip.
“In addition to meeting its CapEx needs and restructuring its debt obligations, the debtor continues to seek to develop additional sources of revenue and funding, and to expand the monorail. To achieve these goals, in addition to reducing its debt obligations, the debtor must retain its nonprofit status and become eligible for federal transportation grants and subsidies. The debtor believes that the plan is an essential step in meeting these goals,” monorail attorneys wrote in Thursday’s court filing.
The potential receipt of such grants, however, isn’t a factor the monorail is asking Markell to consider when he decides whether to approve the plan.
Despite its financial woes, the 3.9-mile monorail says it’s a community asset as it carried its 50 millionth rider in December and during big four-day conventions it carries as many as 70,000 people in and out of the Las Vegas Convention Center, reducing traffic congestion and air pollution.
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