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DIA Ready To Close on $609M Sale

DALLAS - Denver International Airport will close today on $609 million of refunding bonds that priced as its second largest carrier - Frontier Airlines - was filing for bankruptcy protection from creditors.

The city and county of Denver, which issues debt for DIA, scrambled to update its disclosure after gaining assurance from the bond ratings agencies that the bankruptcy was not likely to produce a downgrade.

"We immediately began meeting with our lawyers and underwriters on how to properly disclose the event," said Denver debt administrator Margaret Danuser, who learned of the bankruptcy at DIA Friday morning after arriving on a flight from New York City.

Danuser and DIA chief financial officer Stan Koniz attended a conference there on Wednesday in advance of the Thursday pricing. On Friday, lead underwriter Goldman, Sachs & Co., in the wake of the Chapter 11 filing, announced pricing for the deal to refinance outstanding auction-rate bonds and variable rate bonds.

"We were very pleased with the tone in the market all week, so much so that we added another tranche to refund variable-rate debt that we had planned to issue later," Danuser said.

The lack of ratings action is likely to help demand for the bonds in the secondary market.

Danuser said the city had received reassurances from all three ratings agencies.

Denver's airport bonds carry ratings of A-plus from Standard & Poor's and Fitch Ratings and A1 by Moody's Investors Service. Both provided stable outlooks.

"We didn't take any action on them when United Airlines was in bankruptcy, so we aren't likely to now," said Standard & Poor's analyst Mary Ellen Wriedt.

"Moody's has considered the recent bankruptcy filing of Frontier Airlines and the potential implications that the airline's failure could have on the airport's financial position," the rating agency wrote in affirming the rating Friday afternoon. "At present time, Frontier has indicated its intent to continue operations with limited disruption at Denver. Our rating also considers the airport's strong liquidity position and debt service coverage, which would help to mitigate the loss of passengers and revenues in the event of a possible future disruption in Frontier's operations."

Fitch also affirmed its rating Friday afternoon.

Denver is the latest in a parade of airports seeking to refinance or remarket its auction-rate debt. In the past month, more than $2 billion of airport bonds were issued to replace faltering auction-rate securities.

"That was one of our biggest concerns," Danuser said. "Here we had one of our largest issues, and you're in the midst of a large supply issue."

Frontier said it was forced into bankruptcy after credit card processor First Data Corp. announced it would begin withholding a greater share of proceeds from ticket sales. The filing in U.S. Bankruptcy Court in New York prevents the credit card processor from increasing its "holdback," Frontier chief executive officer Sean Menke said.

"By filing for Chapter 11, we will now have the time and legal protection necessary to obtain additional financing and enhance our liquidity," Menke said in a statement. "Fortunately, we believe that we currently have adequate cash on hand to meet our operating needs while we take steps to further strengthen our company."

Frontier is the fourth U.S. carrier to file for bankruptcy in recent weeks amid soaring fuel prices and a weakening economy. The other carriers - ATA Airlines, Aloha Airlines, and Skybus - shut down operations.

The fact that Frontier plans to keep flying its regular schedule out of its hometown hub brought some hope to Denver officials.

"Frontier Airlines is our hometown carrier, and it has been a valued partner at DIA since the airport opened," Denver aviation manager Kim Day said in a prepared statement. "We have full confidence in Frontier's leadership, and we believe it will emerge from this restructuring process in a strong financial position and will remain one of Denver's premier businesses."

Frontier accounted for nearly 23% of passenger enplanements at DIA in 2007, approximately 16% of the airline rentals, fees and charges, and nearly 8% of airport system gross revenues.

Airline bankruptcies have troubled DIA since its opening in 1995. Continental Airlines, co-signer on the original airport financing with United Airlines, closed its hub and filed bankruptcy before the opening.

The new Frontier Airlines was created by former executives and employees of the previous carrier of the same name that filed bankruptcy and ceased flying out of Denver's Stapleton International Airport in 1986. The new Frontier, founded in 1994, based its business plan on the opening of DIA, which lacked a discount carrier.

However, a year after starting operations at DIA, Frontier faced competition from Colorado Springs-based Western Pacific Airlines, which lasted until WestPac's bankruptcy and liquidation in 1998.

Four years later, United Airlines, which dominates the so-called "fortress hub" of DIA, filed for bankruptcy, emerging in 2006. United is now in talks with Continental Airlines about a possible merger.

 

 

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