DALLAS -- Two years after it began selling debt, Denver today plans to price the last $390 million of bonds needed to build the new Denver International Airport set to be finished 13 months from now.
While institutional investors say they are not worried about cost overruns or delays on the $3 billion debt-financed project, some bond analysts say they still have questions about the economics of the nation's first new major airport since the 1970s.
"I think the market, looking at the underlying economic fundamentals of the project, is comfortable with it," said Tim Haney, airport analyst at Van Kampen Merritt Investment Advisory Corp., whose mutual fund affiliate holds a major position in the bonds. "Once Denver got their upgrade from Standard & Poor's Corp., the market seemed to breathe a sigh of relief."
Market watchers said they expect a quiet but strong reception as a team led by Pryor, McClendon, Counts & Co. brings to market the largest negotiated deal ever handled by a minority-owned firm.
Howard Mackey, senior vice president at Pryor McClenton, confirmed that the black-owned firm will break its own record set with the sale of $319 million of bonds for the Atlanta International Airport on Dec. 14, 1990. He added, "It's the largest that we know of."
Underwriters today plan to price $60.3 million of serials maturing from 1994 through 2000, $71.34 million of terms due 2012, $184.69 million terms due 2022, and $73.68 million of terms due 2025. The bonds are rated Conditional Baa1 by Moody's Investors Service, and BBB by Fitch Investors Service Inc. and Standard & Poor's.
The fixed-rate offering and a planned $135 million sale of variable-rate bonds next weeks will close out the construction financing for the new project.
Once battered by bad news about financial troubles in the airline industry, the project has in recent sales been greeted by an attitude some criticize as too sanguine for an undertaking of this unprecedented size and complexity.
For instance, the project feasibility study done in May showed that the airport would face a $22 million revenue shortfall in 1994 under a scenario where only one major airline used Denver as a hub, and the response was decidedly quiet.
In its "Bond Briefs" report to clients, Kemper Securities Group noted, "The shortfall projection under the one-hub scenario had not appeared in previously reported feasibility studies, yet it went hardly noticed in the market."
Project officials have said the amount is not actually a shortfall. Instead, they said it added revenue that would be raised from airlines under the project's rate-making system.
"It was a kind of worst worsecase scenario," said Gennifer Sussman, finance director for the project. "It is an amount that would be paid by the airlines ... it isn't a shortfall."
Richard Ciccarone, senior vice president and head of fixed-income research at the Chicago-based Kemper, said his staff has questioned other financial projections at the airport.
For instance, he said Denver is projecting a significant increase in concession revenues per passenger, meaning moneys derived from sales in airport shops and restaurants, and from services such as car rentals. That projection, he noted, exceeds larger airports such as Chicago and Dallas.
He also said the projections show concession revenues nearly doubling from recent levels of just under $4 of revenue per enplaned passenger.
"The 1994 numbers they project are significantly higher than what you would normally find at a hub airport," Mr. Ciccarone said in an interview. "Even with an inflation factor in there, they are still on the high side."
But Ms. Sussman said the higher number reflects the fact that the new airport will have more parking spaces and considerably more terminal-area retail and concession space.
Others focused on even more basic numbers, such as estimates of how many passengers will use the airport and whether United Airlines will be the only major carrier using the facility for hub or transfer traffic.
In the latest preliminary official statement, KPMG Peat Marwick, the San Francisco-based feasibility consultant, lowered its projection of traffic at the new airport in 1995. The estimate dropped by 500,000 passengers, to 16.5 million enplaned passengers from 17 million.
"The revised forecast reflects new assumptions, particularly the reduced number of gates that Continental [Airlines] agreed to lease at the new airport," the official statement says.
Despite the projected decline, Peat Marwick now projects a lower cost per enplaned passenger for airlines that it did in May, when the Denver airport was expected to have 17 million passengers in 1995. Projected coverage for the bonds is essentially unchanged.
"The main offset is in the interest rates we're expecting on this deal," said Ms. Sussman, nothing that rates today could be as much as 100 basis points below the 8% long-term rates projected earlier.
Some interviewed said they have used more than Denver's projections. "Everybody has their own numbers," said one investor when asked about the change.
One analysts for a mutual fund company has privately estimated that the cost per enplaned passenger could exceed $20 when the airport opens. Airport officials are not projecting they will near the cap.
The number is critical because if costs exceed that level in 19900 dollars, both United and Continental can break their long-term agreements at the airport.
Even if costs exceed that level, the analysts said the airlines, especially United, are not likely to leave Denver because they could have a virtual monopoly.
"Under one scenario I have run, the cost is something like $30 per enplanement," the source said. "We all know that at some level, the airport works."