Denver Airport Looks for Savings on $250M Refunding

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DALLAS – In a year of record-setting traffic, Denver International Airport returns to the bond market this week to capture interest rate savings on a $250 million refunding.

Based on recent market conditions, the airport expects to save about $44 million or 15% in net present value when it prices its 2016A fixed-rate bonds Thursday, said Michael Lexton, managing director for book-runner RBC Capital Markets.

With final maturity in 2032, the bonds carry ratings of A1 from Moody's Investors Service and A-plus from both S&P Global Ratings and Fitch Ratings. Outlooks are stable.

Co-managers on this week's deal are Loop Capital Markets, Morgan Stanley and US Bancorp.

Michael Bean, managing director of Frasca & Associates, is financial advisor.

On Dec. 6, the airport also plans to price $110 million of floating-rate notes to refund a 2014A private placement to be tendered Dec. 13.

DIA is nearing the final maturity of bonds issued to build the airport, which opened in 1995.

"As a result, the airport is retiring a significant amount of principal balance each year," said Moody's analyst Earl Heffintrayer. "Over the next 10 years, the airport is scheduled to retire almost $2.2 billion of principal, while most debt for the current capital plan, which ends in 2018, has been issued."

The airport has about $3.2 billion in senior lien revenue bonds and approximately $910 million in subordinate revenue bonds outstanding, according to Moody's. With the refunding, senior-lien debt falls to $3 billion and subordinate lien drops to $850 million. About 80% of total debt is fixed-rate and about 20% is variable, the majority of which is hedged with interest rate swaps.

DIA's annual debt service requirements will be about $350 million until fiscal year 2025, when it drops to $250 million through fiscal year 2030. Annual debt service requirements will be around $150 million until 2035, according to Moody's. The following year, debt service drops to roughly $75 million annually and remains around that level until 2043.

"While more than $2.2 billion of principal is scheduled to mature over the next 10 years, the airport plans to increase the debt service payments from FY25 to FY45 to fund DIA's major upcoming capital program," Heffintrayer wrote.

As its debt profile is shrinking, DIA's traffic is growing at a record pace.

As the nation's sixth-busiest airport, DIA has now seen thirteen consecutive months of record-setting passenger traffic through September.

"This was the first September in Denver history with more than 5 million passengers," airport CEO Kim Day said. "Our airline partners continue to experience strong growth, a reflection of Denver's robust economy, which is generating a high propensity to travel and strong inbound demand for visitors traveling to Colorado."

In July, the airport announced it selected Ferrovial Airports to reconfigure the security screening areas of the main Jeppesen Terminal and to provide additional concession areas, through a public-private partnership framework.

"We do not expect the project to significantly alter the credit profile or leverage metrics of the airport," Heffintrayer said.

The tent-roofed Jeppesen Terminal features 1.5 million square feet of space, and includes passenger ticketing, baggage claim, ground transportation, international arrivals, shops and restaurants, office areas and the Transportation Security Agency security checkpoints.

As negotiations on the P3 arrangement continue DIA is working with the TSA to redesign security screening in a way that is more efficient and passenger friendly and could someday become a model for other U.S. airports. The airport plans to relocate the airline ticket counter and TSA screening station regardless of whether an agreement is reached on the public-private partnership, officials said.

In October, the airport opened a new, four-story parking garage, adding 1,821 parking spaces on the east side of the Jeppesen Terminal. Construction of the $45 million structure, located on the southeast corner of the Jeppesen Terminal, began in early 2015.

The project was built by Swinerton Builders and is paid for by the airport's Capital Improvement Project fund. DIA does not receive any taxpayer money from the city's General Fund.

With the opening of the garage, the airport has 16,689 garage parking spaces, and manages a total of 44,271 parking spaces. There are now a combined total of eight, four-story garage modules adjacent to the terminal on the east and west sides.

While parking, airport entrance fees and car rentals bring additional revenue to DIA, the airport is also served by a commuter rail line that runs directly from downtown Denver's Union Station. The $2.2 billion rail line ends at DIA's new South Terminal, which includes a Westin Hotel that opened in November 2015 with 519 rooms, 35 luxury suites and a 37,500 square-foot conference center.

In July, DIA put the final cost of the hotel and transit center project at $579.4 million. With related projects that were considered opportune, the cost of the work came to $714.96 million.

When the work was underway, airport management took some criticism from the Denver Auditor's Office for allowing costs to increase beyond the budget.

In 2014, at the request of Mayor Michael B. Hancock, the airport completed a comprehensive risk assessment on the project that concluded the final costs of the Hotel and Transit Center could be 5-10% over the contracted budget of $544 million outlined in 2013. The cost of the Hotel and Transit Center turned out to be 6.5% above the contracted budget and within the projected range of the airport's risk assessment.

During the four-year construction program, Colorado saw a strong economic recovery that led to higher costs for materials and labor, airport officials said.

The airport maintained a contingency fund of $3.8 million for final closeout items that will be spread across the various program elements through 2016.

"We worked diligently to control costs and ended up with a project well within the estimated range of our risk assessment," Day said. "The capital investments we have made – without using taxpayer dollars – will only boost the airport's economic importance to all of Colorado and help ensure Denver remains competitive in the evolving global aviation market."

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