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Las Vegas Monorail Makes Investment Watchlist

Sat September 18, 2004 - West Edition
CEG



LAS VEGAS (AP) The beleaguered Las Vegas Monorail has been dealt another blow as the system’s prolonged closure has prompted a Wall Street firm to place the system’s $451 million in bonds on an investment watchlist.

Fitch Ratings, a New York financial analyst, announced it had put the bonds on “Rating Watch Negative,” meaning the bonds are in danger of being downgraded. A downgrade would put the bonds in a higher risk “noninvestment” or “junk bond” category.

The potential downgrade would not affect the monorail’s current operations but would hurt holders of the monorail’s debt as the bond’s value would likely drop, said Scott Trommer, senior director of Fitch Ratings.

The downgrade also will likely increase the cost of future bond issues if monorail executives want to borrow to pay for an expansion.

The announcement came a day after monorail management said operators failed to act on 149 warnings that a 60-pound wheel assembly was unstable in the hours before a wheel fell off a moving train, prompting the first six-day closure.

The system was shut down again Sept. 8, barely a day after it reopened when a 2-lb. washer came loose from a train.

No one was injured in either incident but the system remains closed. Officials with Transit System Management, the company that manages the monorail, said they will not estimate when it will reopen.

According to Fitch, the $30 million in uncommitted construction funds and $12 million in damages stemming from delays in opening the system prevent any immediate risk to bondholders.

Brian Krolicki, Nevada state treasurer, said the change will not impact Nevada’s bond rating as the insurance was purchased in anticipation of minor hang-ups. The state issued the bonds, but required the insurance. The monorail company is responsible for paying off the debt.

“The rating agencies are doing their jobs,” he said. “Obviously there are unanticipated problems.”