Vegas Buzz

Fitch's action reflects equipment problems that have led to the closing of the Las Vegas Monorail on two separate occasions since its delayed opening in July. After a wheel fell off a monorail train on Sept. 1, the system was shut down for inspection for a period of six days. The monorail reopened on Sept. 7 and then was closed down the following day after it was discovered that a flange fell off one of the trains. At this point, the extent of the problem is unknown. The Las Vegas Monorail Co. (LVMC), the non-profit public corporation responsible for the project, is investigating the nature of the problem to determine whether it is an isolated event or a systemic issue. LVMC has indicated that Bombardier, the manufacturer of the trains and monorail operator under contract to LVMC, is strongly committed to solving the on-going equipment problems. An opening date for the monorail is currently unknown. Even if the monorail returns to operation soon, Fitch will look for an extended period of reliable operations given a pattern of system equipment problems that go back to late last year.

The availability of about $30 million in uncommitted construction funds, the debt service reserve fund, and $12 million in collected liquidated damages provide an important near term offset to the monorail's equipment problems. The availability of capitalized interest to cover debt service payments through January 2005 is also an important rating consideration. Nevertheless, an extended closure of the monorail and/or a continuing pattern of service interruptions could lead to a downgrade of the 1st tier bonds.

LVMC reports that average daily ridership while the monorail was operating during its first 17 days was 30,811. Although this is about 55% of levels forecasted for the first full year of operations, it is not necessarily inconsistent with Fitch's expectation for ramp-up of demand for this facility. Fitch will continue to monitor the monorail's ridership. The rating on the 1st tier bonds may also be negatively affected to the extent ridership levels do not ramp-up adequately or perceived safety concerns constrain ridership growth.

The 1st tier bonds are limited obligations of the director of the department of business and industry, payable from and secured by a pledge of senior loan repayments, derived from monorail fare and other operating revenues after operations and maintenance expenses and prior to the payment of second-tier and third-tier bonds (neither of which are rated by Fitch). The monorail project consists of the upgrade of an existing 0.8 mile monorail between the MGM Grand Hotel and Casino to Bally's Hotel and Casino and construction of three miles of new guideway from Bally's north to the Sahara Hotel and Casino. Seven stations are located along the alignment serving major hotels, attractions, and the Las Vegas Convention Center along the Las Vegas Strip.