DALLAS -- Moody's Investors Service yesterday confirmed its conditional Baa rating on outstanding and upcoming bonds for the new Denver International Airport, despite continual delays in opening the airport and a flawed baggage system.
"Long-term credit fundamentals remain the basis for the medium grade ... rating, despite short-term concerns over management, project scheduling and opening delays and relations with airlines, particularly United Airlines, the dominant carrier," said a Moody's announcement.
The decision to retain the rating for the airport's $225 million bond issue planned next week and $3.2 billion in outstanding debt runs counter to Fitch Investors Service's downgrade of the airport bonds to BBB-minus from BBB on Tuesday.
However, both rating agencies now give the bonds their lowest investment grade rating after a trouble-plagued baggage system and other problems have delayed the airport opening four times since October.
Standard & Poor's Corp., which rates the bonds BB, or junk grade, also is expected to release its rating this week.
In its decision to retain the rating, Moody's said that adequate bondholder security and sufficient debt service coverage is provided because of the passenger demand and need for the airport. Although Continental Airlines is downsizing significantly in Denver, some traffic already is being absorbed by United Airlines, which has about a 60% share of the market, Moody's said.
"There is a strong origination and destination market in Denver, and it is a critical part of United Airlines' route system," said Dov Iskowitz, an assistant vice president at Moody's.
Iskowitz said the recent agreement between United and the city to work on two parallel baggage systems to get the airport opened by a Feb. 28 deadline underscored the airline's commitment to the Denver market.
"Their intention to enter into an agreement is viewed as an important positive step, which will enable the city to open the airport within a reasonable period of time," the Moody's release said.
Under the initial agreement announced Monday evening, United Airlines will assume responsibility and pay some costs for modifying the flawed automated baggage system that loses and chews up luggage. It was designed by BAE of Carrollton, Tex. The Chicago-based airline has its own engineers working on the project and will oversee adjustments and testing.
Meantime, the city of Denver and a Michigan firm will work on a more conventional, low-tech baggage system to back up the automated system and insure a Feb. 28 opening at the latest.
"Over the past year, management's inability to set and achieve realistic goals and develop a feasible strategy for opening the airport have posed serious credit concerns," Moody's said. "However, with the decision to implement a back-up system and accommodate United's need for the automated ... system, signs of leadership focus have begun to emerge."
Briggs Gamblin, spokesman for Denver Mayor Wellington Webb, said city officials are pleased with the rating. "It is a reflection of the mayor taking a proactive stance on the baggage problems to get the airport open as soon as possible," Gamblin said.
He said that city negotiations with United are continuing in an effort to finalize the baggage-handling agreement as soon as feasible, although no deadline to close the deal has been set yet.
City officials also are preparing to sell $225 million in 30-year airport revenue bonds on Tuesday through a syndicate led by Lehman Brothers. About $123 million would go for capitalized interest to pay bondholders through March, $51 million would pay for the additional baggage system, and $51 million would replenish reserve funds.
Moody's said the offering was essential to maintain liquidity and provide other funds for delays that airport officials estimate are costing $33.3 million a month.
Although the rating was maintained yesterday, Moody's said: "Any further delays to the successful completion of the baggage system, and the opening of the airport by Feb. 28, 1995, would have negative credit implications and could jeopardize future market access."
Moody's also said that the conditional aspect of the rating will be removed following the opening of the airport and verification that revenues from the airport are available to pay debt service.
Maria Matesanz, a Moody's vice president, said that the rating agency projects that debt service coverage for all bonds will be 1.28 in 1995, 1.18 in 1996, 1.17 in 1997, and 1.18 in 1996.
Matesanz said Continental's big reduction in Denver flights from 148 early this year to a planned 23 in October are part of the calculations. "We have always looked at Denver as an airport with one airline hub," she said.
Even with Continental flight curtailments, Moody's said that the new airport would be a state-of-the-art facility that will not only serve the Denver metropolitan area, but also will alleviate the considerable delays in the national transportation system.
The Denver airport would be the first big commercial airport opened in more than a decade and the nation's largest in land mass.