DALLAS - The city of Denver announced late Monday that it plans to refund up to $300 million of Denver International Airport system revenue bonds and give holders of $1.9 billion more of airport debt the chance to cash out next month.
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City officials said further yesterday that under the two-part deal, Denver will issue $275 million to $300 million of Series 1996A bonds to advance refund part of its Series 1992A bonds at their call date in 2002. The city also will issue an undetermined amount of Series 1996B bonds to refund bonds tendered under an offer announced yesterday to holders of select series from 1990 to 1994.
Cheryl Cohen, Denver's manager of revenue, said yesterday that the deals would provide a guaranteed present-value savings of $10 million to $12 million on the A series, and an additional undetermined savings on the B series, which hinges on response to the tender offer.
"Knowing that we're going to sell the A series was a way to test the market for the B series without the tender offer being out there alone," said Cohen. "We don't expect to see the whole $1.9 billion tendered, but we know we can expect some savings from whatever does come in."
Denver cited falling interest rates and its improved credit quality as factors in deciding to move forward with the deal. The city said that interest rates down around 5% are within one quarter of a percent of 20- year lows down, while the bonds the city is seeking offers on carry interest rates of 7.25% to 8.875%.
"Anything that comes in at an acceptable price will generate savings," said Cohen. "If the price isn't right, we're not committed."
The deal marks the second refunding of the $5 billion airport's debt since it opened last Feb. 28, and its first attempt to take out high- interest long bonds through a tender offer.
In June, the city sold $329 million of insured refunding and new-money airport bonds. That deal cut the city's interest cost by an estimated $40 million over the life of the bonds. In November, the city sold another $100 million of airport revenue bonds.
Cohen said the documents on the tender offer would be available today, while a preliminary offering statement is expected to be ready Feb. 29. Goldman, Sachs & Co. was hired to manage the tender offer and senior manage the B series, while Lehman Brothers will be senior manager on the A series.
Bondholders may submit offers to sell bonds to First Chicago Trust Co. of New York until March 11, unless the city cancels the offer sooner.
The tender offer includes 1990A series due 2007, 2012, 2023, and 2025, totaling $643.9 million; 1991A series due 2005, 2012, 2023, and 2025, totaling $452.8 million; 1991D series due 2021 and 2025, totaling $416.1 million; 1992B series due 2023 and 2025, totaling $224.5 million; and 1994A series due 2017 and 2023, totaling $175.5 million. The due date for all is Nov. 15.
Though the deal's size and the scope took some analysts by surprise, some thought it would make sense for the airport to cut its debt service.
"The condition of the market is favorable." said Kurt Forsgren, associate director at Standard & Poor's Corp.
Standard & Poor's raised its rating of $3.5 billion of the city's airport revenue bonds to BBB from BB in October. Meanwhile, Moody's Investors Service has held steady on its Baa rating, and Fitch Investors Service kept its rating at BBB-minus.
Adam Whiteman, Moody's vice president and senior credit officer for airport ratings, said yesterday that the agency visited Denver last week to review the airport's credit. But he said the agency doesn't have enough data on the airport's operations to comment on the credit or refunding. Whiteman said he hasn't reviewed documents related to the refunding.
Although revenues at the airport have been higher than expected, the rating agencies took note of a decline in airport traffic at the new airport when compared with traffic at now-closed Stapleton Airport.
Meanwhile, the city's handling of prior airport bond sales has come under scrutiny by the Securities and Exchange Commission, which said in a letter to Denver this past fall that it may take administrative action against the city. The SEC has been reviewing whether the city adequately disclosed information about possible delays in opening the airport caused by problems with a baggage handling system. Denver denied wrongdoing in the sale of bonds and stated its intention to fight any SEC action.
