BIKE: Vegas monorail in more financial trouble

[Roger Baker]

http://www.reviewjournal.com/lvrj_home/2004/Sep-11-Sat-2004/news/ 
24744208.html

Las Vegas Review-Journal
Saturday, September 11, 2004

INVESTMENT WARNING: Monorail placed on watch list

Bonds in danger of being downgraded

By OMAR SOFRADZIJA
REVIEW-JOURNAL


The Las Vegas Monorail has enough cash to make good on bond
payments and bills into next year, but bondholders were warned Friday
that all is not well with their investments.

Fitch Ratings, a bond rating firm, on Friday placed a "Rating Watch
Negative" status on $451.4 million in construction bonds that paid for  
the
Strip monorail, now indefinitely closed.

The move doesn't downgrade the bond status, but it does warn
bondholders that the status might be downgraded to reflect a greater
chance of default on bond payments.

Analysts note that the loss of around $100,000 in daily farebox revenues
is being absorbed by more than $40 million in cash reserves and
contractual penalties the monorail has collected.

That's enough for the monorail to stay on bond repayment schedules into
January. "There are available funds that provide a very important near-
term offset," said Scott Trommer, a senior director with Fitch in New  
York.

And the bonds themselves are insured against default. Nonetheless, the
fact that the monorail has been shut down twice this month warranted the
warning.

"Given the recent closures of the monorail over the past couple of  
weeks,
that raised concerns where we believed it was important to communicate
that to investors," Trommer said.

Those closings were prompted by a piece of metal that fell away from a
train Wednesday and a wheel that broke off another train Sept. 1.

Previous problems have included a drive shaft that fell from a train  
during
testing Jan. 5 and lingering glitches in the driverless trains' steering
computers that delayed its public opening to July 15.

Monorail spokesman Todd Walker said if rail officials can get the system
operating reliably, the fiscal status will take care of itself.

"All of our focus is on ensuring the system operates sufficiently in the
long-term," Walker said. "Everything else will follow that."

Said Trommer: "One of the keys to keeping off a negative rating and
having a stable outlook on the books is that the issues are addressed  
and
that the monorail begins to operate over a period of time with reliable
operations, and that ridership levels continue to ramp up and hold."

"If there's an extended closure or if you have these episodes where the
system is running and it shuts down for a period of time, that's  
expected to
have an adverse effect on ratings," Trommer said.

Fitch's rating was no shock to Regional Transportation Commission
officials, who on Thursday said a planned $450 million downtown
extension is on indefinite hold until problems can be ironed out.

"We're not surprised at all," said Ingrid Reisman, a commission
spokeswoman. "It would seem that would be absolutely expected when
the system isn't currently running or bringing in any revenue."

Any future downgrade, default or inability to fix the system's woes  
would
bode poorly for a future $130 million bond sale needed for the downtown
expansion.

"We'll have to see how it plays out," Reisman said.

The monorail's bonds now carry a BBB-minus rating, which was its initial
rating and the lowest grade of so-called "investment-grade" bonds. Such
bonds are much more desirable to investors than bonds graded as "non-
investment" or "junk bonds."

The state of Nevada's bonding authority was used to issue the monorail
bonds. The state won't see its bond status affected if the monorail's  
bonds
flounder. "There's no pledge on the state or tax sources," Trommer said.

Undergoing its own fiscal woes is monorail builder and operator
Bombardier Corp.

Last month, another bond rating firm, Moody's Investment Service, said  
it
may drop Bombardier's debt ratings to "junk" status, citing the  
Canadian-
based train and plane maker's weak cash flow, according to the Reuters
news service.

On Friday, Bombardier stock closed at $3 a share. It has been sliding
downward since hitting a 52-week high of $7.11 a share in February,
according to CBS Marketwatch.com.

Monorail officials this week were still in the early stages of an
investigation. They said the closure was certain to go into next week  
and
could last much longer.

"We know there's no way it's going to be happening through the
weekend," Walker said.

Ticket holders can arrange for a refund by calling 699-8299.