DALLAS - With the airline industry in turmoil, Denver continued to restructure its variable-rate debt with $85 million of revenue bonds for Denver International Airport yesterday.

The deal came nearly three months after DIA converted $609 million of its auction-rate debt with variable-rate bonds.

"The next thing we're going to do is convert our 2007F bonds from auction-rate to weekly mode," said Stan Koniz, chief financial officer for DIA. "That should happen about mid-July."

The bonds issued yesterday take out variable-rate debt secured by insurance from CIFG Assurance NA. The new bonds carry a letter of credit from Wachovia Bank NA that expires in 2011. Wachovia Securities is the remarketing agent for the bonds. Depfa First Albany Securities LLC and Estrada Hinojosa & Co. served as financial advisers on the deal.

The bonds carry underlying ratings of A-plus from Standard & Poor's and Fitch Ratings, and A1 from Moody's Investors Service. The enhanced ratings are triple-A from Standard & Poor's and Moody's and AA-plus from Fitch.

CIFG, one of several insurers that have lost their triple-A status amid the subprime mortgage collapse, was downgraded two notches by Standard & Poor's to A-minus last week. Moody's rates the insurer Ba2, while Fitch confers a CCC.

Despite the precarious condition of DIA's dominant carrier United Airlines and the bankruptcy of its second-largest airline Frontier Airlines, the airport continues to achieve record passenger volume as it serves as one of the nation's most efficient connecting hubs, analysts noted.

"The Frontier bankruptcy, coupled with announced capacity cuts from United and other airlines, will likely create challenges during the near term," Standard & Poor's observed. "Although traffic has continued to increase year-over-year through April 2008, growth will likely fall below the high levels seen in recent years."

With $4.1 billion of outstanding senior-lien revenue bonds and $100 million of commercial paper, DIA carries a heavy debt load amid a $987 million capital improvement program in progress, analysts noted.

Turmoil in the industry brought on by record fuel prices led DIA to delay the $280 million Concourse C expansion project, the design of which will be completed this summer. If Denver-based Frontier gives up gates on Concourse A, the additional space in Concourse C, the smallest of three concourses, will not be needed.

The airport is also slowing plans for a Westin-Starwood hotel that has been under consideration for several years.

Concourse A was to have been the hub of Continental Airlines when the $5 billion airport was planned. But Continental, which was co-signer on the airport with United, pulled its hub out of Denver before the airport's completion in 1995.

Now, United and Continental are preparing to operate under an alliance that allows them to issue tickets for each others flights, share routes, and other services. The deal announced this week comes after the two airlines failed to reach agreement on a merger.

Houston-based Continental said it will seek antitrust immunity from the U.S. Department of Transportation to form joint ventures on trans-Atlantic flights with Chicago-based United and German carrier Lufthansa Airlines, and eventually on flights to Latin America and Asia.

Otherwise, the Continental-United deal will be limited to code-sharing - selling tickets on each other's flights and offering reciprocal frequent-flier and airport-lounge programs.

United this month also ended its low-cost Ted unit that was based in Denver and served 20 markets. The carrier-within-a-carrier was designed to help United compete with Southwest Airlines, which is now operating out of DIA.

United said it would also remove 100 aircraft from its fleet and lay off 1,600 employees. With 55,000 employees worldwide, United has 5,500 in Denver.

Koniz said the impact of the cuts would not show up until the fall.

"There's no lack of crowds in the terminal," he said. "But what the future holds, it's hard to tell."

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