DALLAS -- For months, observers debated who needed a final lease agreement from United Airlines at the Denver International Airport more: the city or the airline.
In the end, they needed each other.
"Maybe the city wasn't in the strongest position, but if United wanted to operate there, then Denver had them," said Andrea Bozzo, senior vice president at Fitch Investors Service. "It was a game of cat and mouse, and that's why it took this long."
After months of posturing. Denver and Chicago-based United late Monday announced that they had reached the final terms of a 30-year lease agreement that commits the carrier to use 42 jet gates and 24 commuter gates at the $3.1 billion airport.
For Denver, the pact could mean higher ratings and new investors for its next $1 billion debt offering. For analysts and bondholders, the deal is the good news they've been expecting.
"It's what we've been anticipating," said David Johnson, portfolio manager for Van Kampen Merritt, whose mutual funds are one of the largest holders of Denver Airport revenue bonds. "It solidifies the project."
While United has a reputation for drawn-out negotiations, city officials say that hardball tactics by Denver's new mayor, Wellington Webb, forced the airline into intensive negotiations over the Thanksgiving holiday that led to the agreement.
"The reason we have an agreement today is because the mayor said to come in and talk or he was willing to cancel the [tentavie] agreement," said Patricia Beer, Denver's manager of revenue. "He made it known that he would have negotiated some of the terms of the [earlier] agreement differently."
Specifically, Ms. Beer said Mayor Webb would not have agreed to share 75% of net airport revenues with United that the former mayor, Federico Pena, allowed in early talks. Also, she said the terms to settle outstanding litigation would have been resolved differently.
Analysts say the city appears to have resisted attempts by United to force costly new concessions in a final pact. As negotiations intensified, for instance, Denver rebuffed efforts by United to give the carrier a veto power over future capital programs after the airport opens in 1993. Analysts said such a consession could have been viewed negatively because it would have given away some control of the airport.
United officials declined to discuss the negotiations, but city officials did not.
"To my knowledge, we didn't give in on anything," Ms. Beer said. "The mayor stood quite strong."
The initial reaction on Wall Street has been strong. But as the city looks to a planned February bond sale, project officials are optimistic about a possible ratings upgrade, the prospects for securing bond insurance for the issue, and potential new investors.
Like some brokerages, Kemper Securities Group had prohibited the sale of the securities to its retail customers because of project uncertainties. That may change now. "We'll have to assess it to see where we are," said Richard Ciccarone, senior vice president and manager of fixed income research at Kemper. "We want to look at the total picture."
Ms. Beer said the United agreement may also influence bond insurers in supporting the next sale, adding: "The city has always had a plan on the table and this proves again they were moving in the right direction."
Wall Street analysts yesterday said they too will study the agreement, but said unresolved issues include the future of Continental Airlines at the airport.
The number two carrier at Stapleton International Airport, continental has signed a long-term agreement to use Concourse A at the new airport, but it is still not clear how the airline's bankruptcy might affect that agreement.
Earlier this month, a bankruptcy judge granted a request giving the airline until Feb. 6 to file a formal reorganization plan which would indicate how the company plans to operate in the future.
Continuing uncertainty over Continental is not likely to delay the next planned sale of up to $300 million of fixed-rate securities in February, said the airport's finance director, Gennifer P. Sussman, adding: "Our time table for selling bonds has always been project related," she said.
A review by rating analysts is not likely to wait until Febuary, either. Denver officials yesterday finished two days of previously scheduled meetings with the rating agencies.
Moody's has assigned a Conditional Baa1 rating to the bonds, while Fitch rated the project triple-B. Standard & Poor's Corp., considered by many to have the harshest view of the project, rates the $2.1 billion of outstanding debt at BBB-minus.
"Obviously, we will look at an upgrade, but we're not going to wait to review ths at the next bond sale," said Todd Whitestone, managing director at Standard & Poor's. "Hopefully, they've turned a corner.
