SAN FRANCISCO Las Vegas Monorail Project revenue bonds, issued by the Nevada Department of Business and Industry, fell to junk status yesterday after Moodys Investors Service downgraded the projects $445.8 million, first-tier bonds underlying rating to Ba1 from Baa3. Those first-tier bonds are insured by triple-A rated Ambac Assurance Corp
The downgrade is the result of actual revenues to date being lower than the original forecast, said Moodys, which is largely due to the mechanical problems that kept the elevated track shut for most of last year. Moodys assigned a negative outlook.
After a belated start, the system was closed indefinitely on Sept. 8 after a two-pound metal chunk fell off of a moving train behind the Paris-Las Vegas casino. That shutdown came just days after reopening from an earlier glitch that forced a closure during Labor Day Weekend. The train restarted operations at the very tail end of December 2004 but although ridership is increasing, more operating history will be needed to fully assess credit quality, said Moodys.
These events have caused significantly weaker than expected ridership and revenue results during the first months of operation and the ramp-up period has been compressed due to the one-year delay in system delivery following problems with train control and equipment reliability, said analyst Anne Van Praagh in the report.
The rating agency further notes that the projects revenues should cover its operating expenses in 2005 and that there are sufficient reserves to cover any deficits plus debt service if needed for the next two to four years.
The bonds were issued in 2000 to finance the construction of the four-mile line, which connects hotels and convention facilities to casinos on the Strip. The project was additionally financed with $160 million of second-lien bonds, and a $48.5 million tranche of subordinate bonds, according to the Website of the Las Vegas Monorail Co., the nonprofit entity that runs the project.
Moodys only rates the first-tier bonds. Fitch Ratings rates the first-tier bonds at BBB-minus underlying, but placed the rating on negative watch in September. Standard & Poors does not rate the credit.
