The Las Vegas Bond Monorail Disaster

The Vegas Monorail, which is currently hanging around reporters at CES, is a disaster that’s been in the making for years.

Besides the fact that it’s inconvenient and no one is using it, it’s heavily in debt and the bonds are essentially worthless at this point:

Graphics and coffee: In its 2010 budget, the monorail projects that 6.2 million people will use the system this year. Ten years ago, URS Greiner’s projection for ridership in 2010 was 21.6 million.

It’s quite simple. There is not enough goodwill and the bonds will never be redeemed in their current form. But what about credit enhancement? The bonds were divided into three tranches. The most senior tranche was provided by Ambac.

Upper tier bondholders have not yet defaulted due to Ambac’s insurance proceeds. The bond market, however, does not appear to place much value on a defaulted bond covered by an insurance policy from a dodgy insurer with Caa2 and CC ratings from Moody’s Investors Service and Standard & Poor’s, respectively. .

At the end of last month, one of the senior bonds due in 2032 was trading at a price of 22 cents to the dollar.

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