Las Vegas Monorail Bonds: More Bad News

According to a Business Wire story, “a default of some kind appears probable” on the bonds of the Las Vegas Monorail, based upon a “CC” Fitch Rating.

The monorail was developed as a private venture and supported by tax-exempt industrial development bonds issued by the state of Nevada. Project promoters produced an “investment grade” projection of 53,500 daily riders for 2004. In 2007, the average daily ridership was 21,600—60 percent below projection. This author had produced a report during the planning process projecting between 16,900 and 25,400 daily riders for 2004, the mid-point of which, at 21,200, was five percent below the actual 2008 year-to-date ridership (www.publicpurpose.com/ut-lvmono-0006.pdf).

The eventual results in Las Vegas may be unfortunate for investors. Moody’s Investors Services has downgraded the bonds to “junk” status and has indicated that “At current ridership and revenue levels, a payment default is anticipated by 2010 once reserves are exhausted.” (www.kvbc.com/Global/story.asp?S=7797066 and www.reuters.com/article/companyNews/idUSN2959008320080129). Finally, the bond insurer, AMBAC Financial Services, has run into financial difficulties and has had its credit rating dropped two levels (www.bloomberg.com/apps/news?pid=20601087&sid=asLtTQyLRQQs&refer=home). Holders of insured Las Vegas Monorail bonds could lose their investments, along with holders of uninsured bonds.