Wednesday, Feb. 17, 2010 | 8:35 p.m.
- Monorail spending expected to be scrutinized at bankruptcy hearing (2-17-2010)
- Las Vegas Monorail bonds downgraded after bankruptcy filing (2-5-2010)
- Las Vegas Monorail argues against bankruptcy as municipality (2-3-2010)
- After all the promises, will taxpayers be stuck with the monorail’s bills? (1-22-2010)
- Judge sets hearing date in Las Vegas Monorail bankruptcy case (1-19-2010)
- Las Vegas Monorail files for bankruptcy protection (1-13-2010)
Beyond the Sun
Las Vegas Monorail President and CEO Curtis Myles spent several hours on the witness stand in U.S. Bankruptcy Court on Wednesday defending the transit operator’s decision to seek reorganization of its massive debt.
But in a revealing interview after the day-long hearing before U.S. Bankruptcy Judge Bruce Markell, Myles discussed his strategy going forward should the judge grant the monorail’s request to proceed under Chapter 11 of the bankruptcy code.
Markell took under advisement arguments from the monorail, its major creditor and a bank that disputes the way the transit operator has transacted its financial affairs since last fall. Markell said he expects to issue his rulings as early as next week.
After the hearing, Myles brushed aside rumors that the monorail would attempt to sell its assets to the Regional Transportation Commission, where he served as assistant general manager before taking his current position in 2005.
Instead, he disclosed a multi-prong strategy that includes applying for Federal Transit Administration funds and pursuing a partnership with Chinese investors and government agencies, all for the purpose of expanding the monorail to McCarran International Airport.
To apply for the federal funds, though, Myles said the monorail likely would have to be sponsored by Clark County or another government agency in Nevada.
The China connection began with a five-day trip he took to Beijing in June with representatives of the proposed DesertXpress high-speed train project that would link Las Vegas with Southern California.
Myles said the Chinese officials he met included senior executives with a state-owned bank and a state-owned railway company.
“There are still doors open with these individuals,” Myles said. “My understanding is that they are performing their due diligence. The idea is that there would be a seamless system connecting the existing monorail with the airport.
“The Chinese are looking to franchise their rail system expertise around the world.”
At least this is how Myles said he hopes things turn out. But that’s not a sure thing, given that the major creditor, Ambac Assurance Corp. of Wisconsin, has argued that the monorail doesn’t even qualify as a Chapter 11 debtor.
Ambac insured more than $450 million of the $649 million in bonds that were issued by the state in 2000 to build the transit system.
Ambac attorneys told Markell that the only appropriate bankruptcy for the monorail would be under Chapter 9. For that to happen, the monorail would have to be treated as a municipality or other local government agency.
Ambac attorney William Smith of Chicago told Markell that when the Nevada Department of Business and Industry issued the industrial development bonds in 2000, the monorail had to be declared “an instrumentality of the state” to make the bonds tax-exempt. The tax-exemption allowed the monorail to borrow at lower interest rates than available under conventional financing.
The reason Nevada was forced to declare the monorail an instrumentality of the state is that in 2000, Nevada was allowed by the Internal Revenue Service to issue only $200 million in tax-exempt private activity bonds, Smith said.
It was because the monorail bonds exceeded that cap that the transit operator was presented to the IRS as an instrumentality of the state, Smith said.
“I think the judge understood that the standards used to determine an instrumentality of the state for tax purposes is also what is used by other courts” to determine eligibility under Chapter 9, Smith told the Sun.
Ambac lawyers sought to bolster their argument by pointing to the control the governor of Nevada has over the monorail’s budget and approval of members of its board.
Myles countered that the monorail acts as a private nonprofit corporation — and therefore is an eligible Chapter 11 debtor — because it must maintain a business license and a franchise agreement with Clark County and has no taxing authority. Monorail attorneys also said their client is not even eligible to file under Chapter 9.
Legal experts have told the Sun that creditors such as Ambac would have more control over the potential sale of assets under Chapter 9 than under Chapter
Myles also defended his $331,000 salary and the $5,000-a-month stipends paid to the monorail’s five board members. His salary in particular, he said, is about equal to what the heads of public transit systems make when benefits packages are considered.
Markell also heard arguments between the monorail and Wells Fargo Bank, which had exclusively managed the transit operator’s accounts until last fall. The bank had began rejecting requests for certain reimbursements — including the $6,700 Myles spent to go to China — arguing that they did not fall under necessary operation and maintenance expenses.
But the monorail, which had begun exploring a restructuring of its debt, opened an account with Bank of America to cover expenses it said Wells Fargo refused to pay.
Wells Fargo, which has been involved since the bonds were issued, stepped up its role as a trustee of the monorail’s funds in 2007 after the monorail defaulted on the bonds.
Markell is being asked to decide whether the bank’s trustee role was violated by the monorail and whether any sanctions are appropriate.
The monorail filed for bankruptcy last month, revealing at the time that it owed $500 million to $1 billion.
Although monorail officials say it makes enough money to pay for ongoing maintenance and operations, it does not earn enough from ridership fares and advertising to pay off the bonds.
The four-mile transit route that runs east of the Las Vegas Strip has carried more than 40 million passengers, but its ridership has fallen far short of initial projections.
Miles told Markell that in recent years, the percentage of tourists who use the monorail has dropped from 20 percent to 16 percent because the transit operator has been spending less money on marketing and because fewer people are flying into Las Vegas.
Traditionally, 80 percent of the monorail’s riders are individuals who fly into town.
Although the Nevada Department of Business and Industry issued the tax-exempt industrial development bonds, it has maintained that taxpayers are in no way liable for bond debt that the monorail is unable to repay.
Under Chapter 11 reorganization, it is possible that Ambac could lose a substantial amount of money. The insurer has reported that it could lose as much as $1.1 billion if the monorail does not retire any more of its debt.