DALLAS -- Denver has delayed by one week its $225 million bond sale to pay for an additional baggage system at the new Denver International Airport and to carry project financing for seven more months, the city's revenue manager said yesterday.
"We originally had been hoping that the preliminary official statements would be in investors' hands today," said revenue manager Patricia Schwartzberg. "But we missed our printer's deadline."
Schwartzberg said that the delay of the sale until the week of Aug. 29 stemmed from changing information on the alternative baggage system announced earlier this month by Denver Mayor Wellington Webb and the necessity of meeting disclosure requirements.
The proposed manual baggage system would back up an automated system that has not functioned during months of testing and troubleshooting and has resulted in several postponements in the opening date of the $3.5 billion airport within the past year.
The Denver city council has given preliminary approval to a contract with Rapistan Demag Corp. of Grand Rapids, Mich., to install the conventional baggage system by the end of the year so that an opening date can be set.
On Monday evening, the council overwhelmingly approved the $26.37 million contract with Rapistan on the first reading. A contingency clause and related expenses would bring the total price tag to about $50 million, said Briggs Gamblin, spokesman for Webb.
Gamblin said final approval is scheduled for Monday and Webb is expected to sign it within two days after that.
"The only caveat is that we don't know what, if any, opposition United will bring to bear between now and next Monday," he said.
While a United Airlines spokesman could not be reached for comment yesterday, officials at the Chicago-based carrier have said that they are not convinced that a manual baggage system will meet the needs of their customers and are conducting an independent analysis of the baggage system.
United is the dominant hub carrier in Denver and has more than 60% of the market share, giving the airline much leverage on airport issues.
In the meantime, the city is preparing for the bond sale. "We are working with investors and the rating agencies as we always do, and we are continuing discussions with United Airlines," Schwartzberg said. "We want to work with United and make it a cooperative process, but we believe we can go forward regardless."
She said the structure of the bond sale has yet to be determined, but she expects it to comprise 30-year airport revenue bonds and serial or term bonds. Lehman Brothers will be the senior manager on the negotiated deal, which is expected to be priced on Aug. 30.
Plans call for putting the preliminary official statements in the mail by the end of the week, although that could be delayed, Schwartzberg said.
The bonds would be added to the $3.5 billion of debt already issued for Denver International Airport, which would be the nation's largest, Covering twice the land mass of Manhattan Island.
Of the $225 million of bonds, $123 million would go for capitalized interest to pay bondholders through March. About $51 million would pay for the additional baggage system, and $51 million would replenish reserve funds that have been used in the last eight months to meet expenses and to pay for the cost of bond issuance.
New York City rating agencies are expected to rate the issue as early as today, and analysts did not want to make specific comments on the bonds until the ratings are completed.
In May, the rating agencies downgraded the airport debt when baggage system problems delayed the airport's opening.
Fitch Investors Service rates the debt BBB and has the bonds on Fitch Alert with negative implications. Moody's Investors Service rates the bonds conditional Baa, and Standard & Poor's Corp. rates the bonds BB with a developing outlook.
Ernest Perez, a Standard & Poor's director and head of the transportation group, said he thought pursuing an alternate baggage system was a good idea. "The only concern that we have is whether United Airlines is on board with the alternative system," he said.
Standard & Poor's is expected to release a rating today, as is Fitch.
Robert Miller, an assistant vice president for Moody's, said he expects a rating to be released this week after a team of analysts reviews the airport revenue bond issue.
Miller called the city's decision to move forward with an alternative baggage system a positive step. "Momentum has been regenerated, and that comes from the city's stance that they will do whatever it takes to get the project moving and the airport open."
He said the key issue was whether the manual baggage system would meet the required standards of the airlines.
The automated system, which is being developed by BAE Automated Systems of Dallas, is supposed to operate with 4,200 cars that travel along tracks beneath the airport.
