City and County of Denver Municipal Airport System ANNUAL ...

City and County of Denver
Municipal Airport System
NOTES TO FINANCIAL STATEMENTS
December 31, 2010 and 2009
Payments by the Airport System to counterparties relating to these swap agreements, including termination payments,
are Subordinate Obligations, subordinate to debt service payments on the Airport System’s Senior Bonds, and on
parity with the Airport System’s Subordinate Bonds. The year-end fair values were calculated using the mid-market
LIBOR and SIFMA swap curves as of December 31, 2009 and 2010. Fair values represent the difference between the
present value of the fixed payments and the present value of the floating payments, at forward floating rates as of
December 31, 2010. When the present value of payments to be made by the Airport System exceeds the present value
of payments to be received, the swap has a negative value to the Airport System. When the present value of payments
to be received by the Airport System exceeds that of payments to be made, the swap has a positive value to the Airport
System.
Risks Associated with the Swap Agreements
The following risks are generally associated with swap agreements:
Credit Risk – All of the Airport System’s swap agreements rely upon the performance of swap counterparties. The
Airport System is exposed to the risk of these counterparties being unable to fulfill their financial obligations to the
Airport System. The Airport System measures the extent of this risk based upon the credit ratings of the counterparty
and the fair value of the swap agreement. If the Airport System delivers a surety policy or other credit support
document guaranteeing its obligations under the swap agreement that is rated in the highest rating category of either
Standard & Poor’s, Moody’s Investors Service or Fitch, for any swap agreement, the counterparty to that agreement is
obligated to either be rated, or provide credit support securing its obligations under the swap agreement rated in the
highest rating category of either Standard & Poor’s, Moody’s Investors Service or Fitch; or, under certain
circumstances, provide collateral. The Airport System is obligated, under the swap agreements, to provide such surety
policy or credit support if the unsecured and unenhanced ratings of the Airport System’s Senior Bonds is below any
two of BBB by Standard & Poor’s, Baa2 by Moody’s Investors Service or BBB by Fitch. As of December 31, 2010,
the ratings of the Airport System’s Senior Bonds were A+ by Standard & Poor’s (with a stable outlook), A1 by
Moody’s Investors Service (with a negative outlook) and A+ by Fitch (with a stable outlook). Therefore, no surety
policy or credit has been provided to the counterparties by the Airport System. Failure of either the Airport System or
the counterparty to provide credit support or collateral, as described in the swap agreements, is a termination event
under the swap agreements (see termination risk below).
52