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
Agreements were subsequently associated with the commercial paper, Series 2008B Bonds and a portion of the Series
2002C Bonds. The commercial paper was refunded by the Series 2009C Bonds. The 1999 Swap Agreements are
currently associated with the Series 2009C, Series 2008B and a portion of the Series 2002C Bonds. The net effect of
the 1999 Swap Agreements, when considered together with the associated bonds, is that the Airport System will
effectively pay a fixed rate, plus or minus the difference between the actual rate on the associated bonds and the Bond
Market Association Index, on $200 million of obligations. The aggregate weighted average fixed rate payable by the
Airport System under the 1999 Swap Agreements is 5.6029%. The 1999 Swap Agreements became effective on
October 4, 2001, and payments under these Agreements commenced on November 1, 2001.
On January 12, 2010, the Airport System terminated the 1999 Swap Agreement with RFPC, Ltd. due to deterioration
in the credit ratings of AMBAC, the credit support provider for that swap. The Airport System simultaneously entered
into a replacement swap with Loop Financial Products I LLC (credit support provided by Deutsche Bank) (See “The
2009A Swap Agreement” discussed below).
The 2002 Swap Agreements and Associated Debt – On April 11, 2002, the Airport System entered into interest rate
Swap Agreements (“the 2002 Swap Agreements”) with two financial institutions in order to effectively change the
amounts it receives under the 1999 Swap Agreements from the SIFMA Index to a percentage of the London Interbank
Offered Rate for one-month deposits of U.S. dollars (LIBOR). The 2002 Swap Agreements have a notional amount of
$200 million, relate to the 1999 Swap Agreements and provide for certain payments to or from each financial
institution equal to the difference between SIFMA payable by the Airport System and a percentage of LIBOR payable
by the respective financial institutions. The net effect of the 2002 Swap Agreements, when considered together with
the 1999 Swap Agreements, is that the Airport System will receive 76.165% of LIBOR, rather than SIFMA, to offset
the actual rate paid on the associated bonds. (See “the 1999 Swap Agreements and Associated Debt”).
The Airport System is exposed to basis risk under the 1999 and 2002 Swap Agreements, due to the differences in
indices between the variable interest rate it pays on the associated debt and 76.165% of LIBOR received under the
2002 Swap Agreements. This basis risk is modified when the 1999 Swap Agreements and associated debt and the
2002 Swap Agreements are considered together with the 2007A Swap Agreements. The 2002 Swap Agreements
became effective on April 15, 2002 and payments under these Agreements commenced on May 1, 2002.
On January 12, 2010, the Airport System terminated the 2002 Swap Agreement with RFPC, Ltd. due to deterioration
in the credit ratings of AMBAC the credit support provider for the swap. The 2002 swap agreement was not replaced.
(See “The 2009A Swap Agreement” discussed below).
The 2005 Swap Agreements – In April 2005, the Airport System entered into interest rate Swap Agreements (“the 2005
Swap Agreements”) with four financial institutions in order to take advantage of and secure prevailing interest rates in
contemplation of the future refunding of a portion of the Series 1996A Bonds and Series 1996D Bonds through the
Airport System’s issuance of variable rate bonds on or before November 15, 2006. On August 9, 2006, the Airport
System amended the 2005 Swap Agreements. The notional amounts of the 2005 Swap Agreements are approximately
$56 million, $56 million, $112 million and $56 million, respectively, and provide for certain payments to or from each
financial institution equal to the difference between a fixed rate payable by the Airport System under each Agreement
and 70% of the London Interbank Offered Rate for one-month deposits of U.S. dollars (LIBOR) payable by the
respective financial institutions.
In August 2006, the Airport System issued the Series 2006A bonds in order to refund the Series 1996A and 1996D
bonds, and entered into the 2006B Swap Agreements (described below under “The 2006B Swap Agreements”). The
net effect of the 2005 Swap Agreements, when considered together with the fixed rate Series 2006A bonds and the
2006B Swap Agreements is that the Airport System will pay a fixed rate plus or minus the difference between the
SIFMA index and 70% of 1-month LIBOR on $280 million of obligations.
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