A tack to lay down tracks

LAS VEGAS, Nevada -- Operators of the Las Vegas Monorail are looking forward to an extension to McCarran International Airport even as the rail system's debt rating points toward default.

In a presentation to a Southern Nevada tourism booster board, Las Vegas Monorail Co. President and Chief Executive Officer Curtis Myles said ridership is up to about 8.5 million people annually and the rail system generates more fare revenue than rail transit systems in San Francisco, Los Angeles and Boston.

Myles told board members of the Las Vegas Convention and Visitors Authority that a monorail extension from MGM Grand to the airport would make the system more convenient for visitors by ferrying as many as 8,000 riders per hour -- the equivalent of nearly 2,700 cab rides.

"This is one of the few places where you can fly in and see what you want to do," Myles said of how airline passengers en route to Las Vegas can see their hotel destinations from the plane. "What people don't realize is it is going to take an hour, an hour and a half, to get there. That is not great service."

But before the monorail gets an airport extension, it will need a credit extension to stay afloat. And that's unlikely to happen without an infusion of government money, debt analysts say.

That's because the monorail is already failing to meet the terms of some of its approximately $649 million debt load and could default on the bulk of its loans by the end of 2010.

If that happens, the system would fall into the hands of Ambac Assurance Corp., the company that insured $451.4 million in first-tier, tax-free monorail bonds, according to analysts at Fitch Ratings.

It creates an awkward situation for the Las Vegas tourism community.

On one hand there is little to no appetite among resorts or local governments to dump more money into a transit system that is headed toward default.

On the other hand, if the monorail were to grind to a halt it could create demand for more than 22,000 cab rides during major conventions in an area that is already congested. It would also leave an abandoned, elevated rail system east of the Strip between Tropicana and Sahara avenues and in front of the Las Vegas Convention Center.

Resort operators and local government officials don't relish the prospect of shifting tens of thousands of monorail riders into buses, cabs and rental cars in an area already clogged with traffic.

"I certainly look forward to moving tourists around quicker so we can get their money out quicker," said convention authority board member Tom Collins, who is also a Clark County commissioner.

Myles, who didn't mention the monorail's financial state during his presentation, told the authority the company is working with Bombardier, which operates and maintains the system, and Goldman Sachs on a financing plan for the airport extension.

Construction of the extension would coincide with construction of a third terminal at McCarran, which is scheduled for completion in 2012. The extension would be both above and below ground. It would run along the south side of Tropicana, beneath the northern end of the McCarran airfield before turning south to the airport terminals.

Although the monorail can't continue long in its current state, there is evidence the system isn't a complete fiscal black hole.

Fare box revenue produces 129 percent of the cost to operate and maintain the system. That's the best return among 31 rail transit systems listed during the presentation.

That margin could appeal to investors, Fitch Ratings analyst Chad Lewis said.

"There is definitely some incentive to run this to the airport," Lewis said.

However, when debt service is included, the monorail only earns about 60 percent of what it needs to remain viable.

That's why Fitch tagged the $451.4 million in first-tier monorail debt with a "CC" rating, meaning, "default of some kind appears probable."

The monorail company is still servicing $149.2 million in second-tier debt, but just barely, Lewis said. And investors in $48.5 million in third-tier debt, a group mostly made up of Las Vegas resorts, have probably given up on getting a return, Lewis added.

Private investors aren't likely to put money in the system as long as the current debt cloud lingers.

"It does produce a net positive cash flow, so clearly there is some money," Lewis said. "But the debt is high."