Denver expects strong demand for $265 million GO sale

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Denver is preparing to issue $265 million of general obligation bonds, including the first debt authorized by voters last November.

The bonds are scheduled to sell competitively Tuesday with Hilltop Securities as municipal advisor. Hilltop director Jason Simmons said competitive sales are customary for the top-rated city.

“We expect strong demand for the city’s GO bonds given the triple-A ratings,” he said.

The sale comes shortly after the latest Federal Reserve rate hike, but, Simmons said, “Our view is that the market had already built in the Fed increase. The MMD was relatively unchanged after the announcement.”

Proceeds will be used for a variety of public improvements across the city.

Voters in a 2017 referendum authorized $937 million of GO bonds that the city plans to issue over a seven-year period. The authorization was the largest in Denver's history, according to city spokeswoman Courtney Law.

Transportation improvements make up 46% of the bond projects pitched under the program name “Elevate Denver.”

This week's sale includes $193 million of Series A bonds for citywide projects and $71.7 million of Series B bonds for the Justice Center to currently refund debt for interest cost savings.

“The city has a 3% minimum savings target for current refundings as part of their debt policy,” Simmons said. “We anticipate savings in the 9% range for the Series 2018B Refunding.”

Denver officials expect the next GO sale in 2019.

The city is also scheduled to issue $300 million in voter-approved excise tax revenue bonds for the National Western Center campus and $98 million for the Colorado Convention Center.

“The city expects both transactions to be completed by late summer,” Simmons said.

Another $122 million of excise tax revenue bonds are to be issued in 2020 for the National Western Center campus.

Funding for convention center improvements will be bolstered by a $129 million issuance of certificates of participation.

“Given the rapid growth in both market value and the city's budget, the debt and contingent liabilities score is not expected to worsen as a result of the additional debt,” according to S&P Global Ratings analyst Jane Ridley. “However, the debt and pension burden is pushing up the city's fixed charge costs, and at 15.4% before any new debt service is layered on, these costs could place additional pressure on the city's budget.”

Despite those factors, Denver retains stable outlooks on its triple-A ratings from S&P, Moody’s Investors Service and Fitch Ratings.

“Denver is eligible to be rated above the sovereign because we believe the city can maintain better credit characteristics than the U.S. in a stress scenario,” Ridley said in explaining why the city’s credit exceeds the nation’s AA-plus rating.

“The property and sales tax revenues that support Denver's operations are likely to continue at a strong pace of growth given rapid population gains and robust economic expansion,” said Fitch analyst Jose Acosta. “The city's independent legal ability to raise revenues is ample, derived from its control over the special tax on retail marijuana, fees and charges for services, and the voter-approved flexibility on property tax revenues.”

With an estimated 2017 population of 704,621, Denver is the state capital and the hub of a booming 10-county metropolitan area of more than 3 million people, about half of the state’s population.

“The local economy continues to expand rapidly, with continued sector development in professional and business services, education and healthcare, and tourism,” Acosta wrote. “The expansive employment base remains resilient in the face of fluctuating oil prices and stalled exploration activity within the Front Range.”

A young population and highly educated workforce are expected to support healthy economic growth over the medium and long term, according to the research firm IHS Markit. The city's 2016 per capita personal income of almost $67,300 is 137% of the U.S. average.

Rapid home price appreciation fueled large assessed value gains of 26% in 2015 and 20% in 2017.

Denver's median home value increased to $418,300 in 2018, a 9% gain over the prior year, according to the online real estate firm Zillow. Total building permits rose by 17% in 2017.

Complementing the city’s redevelopment of the National Western Stock Show grounds in north Denver is the replacement of the 54-year-old Interstate 70 viaduct that bisects the complex.

Plans call for the elevated viaduct to be replaced with a below-grade freeway that will include managed lanes and a cover near the National Western Center that will allow development of a park over the highway.

Construction of the 10-mile, $1.17 billion project will take about four to five years to complete, creating an overlap with the National Western work.

To coordinate Denver’s bond-financed projects around the perimeter of the National Western Center and Central 70 developments, Mayor Michael Hancock created the North Denver Cornerstone Collaborative in 2013.

The state also contributed $132.5 million of certificates of participation in March to help finance the nearly $1 billion National Western project.

The state’s issue came two years after Denver priced $425 million of voter-approved bonds that were shared between the National Western Center and the Colorado Convention Center downtown.

The 250-acre National Western Center in north Denver has been home to the National Western Stock Show and Rodeo for 111 years.

In February, the Denver City Council approved contracts for the upcoming $233 million rooftop expansion project at the Colorado Convention Center.

Fentress Architects, a hometown firm that designed Denver International Airport’s tented terminal roof, won the $12.5 million design contract for convention center that opened in 2004. Trammel Crow Company won the $9 million engineering and construction contract. Construction is expected to start next year.

To pay for the expansion, Denver plans to use a voter-approved lodger’s and car rental tax, an extra 1% surcharge on stays that was approved last year by midsize and large hotels in the city, and city income related to the convention center.

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Primary bond market Denver City & County Colorado