Major Agencies Affirm Denver Airport Project's Near-Junk Bond Ratings

DALLAS - Wall Street analysts have affirmed the near-junk ratings of the $2.66 billion Denber International Airport project, which expects to sell another $500 million of fixed-rate debt this week.

Project officials had expected the ratings to remain the same, noting - as the analysts did - that little has changed since last spring, when Denver sold long-term debt to finance the nation's first new airport construction since the mid-1970s.

The officials could not be reached for comment because they were meeting with potential investors in advance of this week's pricing.

Last week, Standard & Poor's Corp. was the first to affirm its rating at BBB-minus. Moody's Investors Service also confirmed its conditional Baa1 rating. And Fitch Investors Service affirmed its triple-B rating on $1.545 billion of outstanding parity debt and the new issue.

"We feel comfortable, as we have in the past, with the ratings," said Adam Whiteman, vice president at Moody's.

Both Moody's and Fitch said its ratings were supported by Denver's strong local air travel market and the role that the new airport would likely play in the national transportation system.

The analysts noted that Chicago-based United Airlines, the top carrier at Stapleton International Airport, had committed to the new airport, but the agencies differed in their views of that development.

Moody's called United's commitment to the new airport when it opens in late 1993 a positive credit factor. Fitch was more tentative, noting that the city had until Nov. 30 to negotiate a final agreement with the carrier.

Standard & Poor's viewed the agreement positively, but added that it is "cautious" because of United's "history of protracted negotiations with the city, and [the carrier] may believe that it can improve its ultimate use and lease agreement by further prolonging this process."

Denver officials have been confident about United's commitment to the new airport and revised their plan to include $585 million in additional costs to accommodate the carrier.

"The $500 million increase in project costs is significant but not a fundamental credit concern as this reflects changes in project scope and not cost overruns," Moody's noted.

A continuing concern for all three agencies is the future of now-bankrupt Continental Airlines at the airport. Because it is not yet clear what role the Houston-based carrier will have at the new airport, city officials recently said they would delay final action on the airline's concourse until next April.

"Reservations also remain concerning the ongoing economic viability of Continental," Fitch wrote. "However, the modular phasing of the project's construction intelligently addresses these uncertainties over the next nine months."

Andrea Bozzo, senior vice president at Fitch, said the future of the airlines using the new airport have been reflected in the rating since it was first issued in April 1990. "It's been a rating factor all along," she said.

The project, and its credit rating, is likely to continue to evolve as Denver plans to return to the credit markets in January with another fixed-rate offering. The size of that issue has not yet been determined.

In total, the city anticipates selling another $943 million in general airport revenue bonds and $255 million of debt enhanced by the newly authorized passenger facility charge, Moody's reported. That would bring the total debt-financing for the new airport to $3.1 billion.

Rating analysts noted they will watch as the project evolves. For instance, Standard & Poor's said that an improvement in Continental's outlook or a final long-term agreement with United would be viewed positively. But analysts warned that other changes could have the opposite affect.

"Large cutbacks by Continental or the break-up or demise of the airline could negatively impact the rating," Standard & Poor's wrote. "In addition, a prolonged negotiation period with United, additional city concessions to the carrier, or continuing increases in project scope would be viewed negatively."

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