DALLAS -- After shuffling its finance team, city officials expect to sell up to $500 million of fixed-rate revenue bonds for the Denver International Airport next month.
The sale, planned for the week of Oct. 9, is expected to come as the General Accounting Office releases its study of the $2.6 billion project. The findings are likely to either silence critics of the new airport or support their claims that it is not financially viable.
Project officials say they are not worried about any effect on the pricing of the near-junk-rated bonds.
"When we said that we welcomed the GAO audit, we were sincere because we felt they are impartial," said city Aviation Director George Doughty. "We're very confident that their report will be accurate, and if it is accurate it will be favorable to the project."
So far, the GAO is not saying what its conclusions are, but a staff member said the project's economic viability is being scrutinized.
"Over all, everybody has questioned the financial assumptions that underlie this project," said the aide, Glen Thomas. "We wanted to test some of those assumptions."
He said the GAO also looked at safety issues concerning the new airport site and the effect the project may have U.S. air travel.
While the report is still secret, a briefing memo on the findings is was to be provided yesterday to select members of the U.S. House Appropriations Committee's transportation subcommittee, which requested the audit.
A congressional aide said the findings probably would be made public by next week because of pending action on the transportation appropriations bill.
Plans now call for a financing team lead by Lehman Brothers and Pryor, McClendon, Counts & Co. to sell between $400 million and $500 million of bonds, which will be subject to the alternative minimum tax.
While Goldman, Sachs & Co. remains a co-senior manager in the deal, it no longer holds the key role it played in the sale of $1.5 billion of airport revenue bonds. And Denver-based Kirchner, Moore & Co., a division of George K. Baum & Co., has been moved down to co-manager status. They were replaced by Prudential Securities Inc., which was named before its top bankers defected to Boettcher & Co. this month. Dain Bosworth remains a co-senior manager.
"Goldman has done a great job for us," Mr. Doughty said. "There has always been a commitment to make sure that not one company ends up doing the whole deal."
Investment bankers in Denver say the changes were expected after Mayor Wellington Webb took office this summer.
Mr. Webb said in an interview in July that he was studying possible changes, but declined to say whether he had been prompted by the campaign backing that Kirchner Moore gave his rival and that Pryor McClendon gave him.
Denver already is preparing to accept proposals from underwriters for a fixed-rate offering planned for January. The new team will complete financing on the airport, which is to open by 1994.
Some investment bankers on Wall Street were surprised that Goldman Sachs had been removed as leader, saying that the firm is widely considered the reason Denver bonds have been able to overcome the city's weak ratings and the uncertain future of airlines.
"Goldman has made that deal go," said a banker at one Wall Street firm." They've got the muscle to move those bonds despite any doubt that may have been out there."
Gennifer P. Sussman, the project's finance director, said the change should not affect the sale. "We're in a substantially better position now than we were in the spring," she added.
Denver officials this week expect to meet with rating analysts to discuss the project. Moody's Investors Service rates the project a conditional Baa 1; Fitch Investors Service assigned it BBB; and Standard & Poor's Corp. gave the bonds a BBB-minus.
City officials said they are not privy to the GAO findings, but transportation specialists who participated in the audit said the agency has focused on questions of interest to investors. These include how the project might be affected if now-bankrupt Continental is liquidated.
Moreover, the GAO is said to have been surprised to find that a long-awaited agreement between Denver and United Airlines, the number one carrier at Stapleton International Airport, was not the finalized document that former Mayor Federico Pena portrayed it to be.
In fact, several experts who have reviewed the agreement say it is little more than an agreement to agree that would still allow United to back out or renegotiate terms until Nov. 30.
"There are quite a few doors at a number of places in that agreement," Mr. Thomas said. "There are different opinions on what all that means."
While agreeing that a final pact with United is not yet signed, Mr. Doughty said the existing pact is firm enough. "What is final about it is that for all practical purposes, United will be at the airport in a big way," he said.
Still, others believe the project faces many of the same critical issues raised by Boettcher & Co. last year when it suggested that the project might soon have non-investment grade ratings.
City officials disagree, but the report's author feels its forecast may be more relevant now than ever.
"It appears to me that there is significantly more concern about the viability of Continental Airlines and about the ultimate cost of the airport now," said the former analyst, Gordon Yale, who also participated in the GAO panel discussions of the project. "I think what I wrote last November is especially true today."
While analysts had said that an agreement with United could be critical to the project, some now have their eye on troubled Continental.
Airline analysts interviewed say its debt burden and continuing losses make it increasingly likely the Houston-based carrier will be liquidated. And, they say, if the airline is sold, it would likely scale back operations at its Denver hub.
If so, Denver officials say, another major carrier would supply the one-third of Stapleton traffic now accounted for by Continental.
Others disagree. They note that Atlanta has been unable to find a user for the terminal space left vacant after liquidation of Eastern Airlines.
Paul Dempsey, director of transportation law at the University of Denver, said no other viable airline would likely rush in to replace Continental and share the airport.
"The trend in the industry is towards monopoly hubs," said Mr. Dempsey, a nationally recognized expert on airlines. "The phenomenon of the duopoly, while wonderful for consumers, is not considered a good thing by airlines.
"Without Continental there, United would enjoy a monopoly and they can raise ticket prices," he said.
Executives at Chicago-based United declined to be interviewed.
But does that mean United would then bear the majority of the cost of the new airport? Experts say that is not likely because the airline would cap its per emplanement fees at $20.
"If you've got a $2.6 billion airport and only one airline, the cost won't stay in a $20 cap," said Dick Williams, finance director at Dallas-Fort Worth International Airport. Later, he added, "I think they are going to have serious operating problems."
Mr. Williams was also a panelist for the GAO and said he was told the cost to carriers is expected to be $17.35 on opening day in 1994. The city says the estimate is $15 in 1990 dollars.
"The project is viable under a number of scenarios," said Mr. Doughty, who said he has stopped trying to convince critics of that point. "I've given up on that. They're not going to believe it until the airport opens up. Even then, they may not believe it."