March

By early March, 1991, Denver had already issued more than $900 million in bonds to begin construction of the new airport. Denver planned to issue another $500 million in bonds the following month. Standard & Poor's Corporation lowered the rating on the DIA bonds from BBB to BBB-, just a notch above the junk grade rating. This could prove to be extremely costly to DIA because any downgrading in bond quality ratings would force DIA to offer higher yields on their new bond offerings, thus increasing their yearly interest expense.

Denver was in the midst of an upcoming mayoral race. Candidates were calling for the postponement of the construction, not only because of the lower ratings, but also because Denver still did not have a firm agreement with either Continental or United Airlines that they would use the new airport. The situation became more intense because three months earlier, in December of 1990, Continental had filed for bankruptcy protection under Chapter 11. Fears existed that Continental might drastically reduce the size of its hub at DIA or even pull out altogether.

Denver estimated that cancelation or postponement of the new airport would be costly. The city had $521 million in contracts that could not be canceled. Approximately $22 million had been spent in debt service for the land, and $38 million in interest on the $470 million in bond money was already spent. The city would have to default on more than $900 million in bonds if it could not collect landing fees from the new airport. The study also showed that a two year delay would increase the total cost by $2 billion to $3 billion and increase debt service to $340 million per year. It now appeared that the point of no return was at hand.

Fortunately for DIA, Moody's Investors Service, Inc. did not lower their rating on the $1 billion outstanding of airport bonds. Moody's confirmed their conditional Baa1 rating, which was slightly higher than the S & P rating of BBB-. Moody's believed that the DIA effort was a strong one and that even at depressed airline traffic levels, DIA would be able to service its debt for the scaled-back airport. Had both Moody's and S & P lowered their ratings together, DIA's future might have been in jeopardy.

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Project Management Made Easy

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