HomeMy WebLinkAboutIR 8924The purpose of this report is to provide an update on DFW Airport's remarketing of their auction
rate bonds in a fixed rate mode. First Southwest Company has reviewed the attached letter
from DFW and has confirmed that the cities • Fort Worth and Dallas have no financial
obligation on these bonds, and that DFW has the legal authority to make this conversion
without Council action. Therefore, we are not recommending a formal briefing at this time.
It is our understanding that the City of Dallas Finance Committee has requested a briefing
which will take place on Monday, March 24, 2008. We have asked First Southwest to attend
that briefing and be available at Pre-Council on Tuesday, March 25, 2008 to respond to any
questions that you may have.
Please contact Karen L. Montgomery, Assistant City Manager/Chief Financial Officer, at (817)
392-6222 if additional information is needed.
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A. Fis �e er,
Dale
City Manager
ISSUED BY THE CITY MANAGER
FORT WORTH, TEXAS
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February 26, 2008
Mayor Mike Moncrief
Salvador Fspino, Councilmember
Chuck Silcox, Councilmember
Danny Scarth, Councilmember
Frank Moss, Councilmember
Jungut Jordan, Councilmember
Carter Burclette, Councilmember
Mayor Pro Tern Kathleen Hicks
Joel Bums, Councilmember
Subject: Remarketing of DFW Airport Auction Rate Bonds in a Fixed Rate Mode
The Dallas/Fort Worth International Airport (DFW) currently has $337 million of Joint
Revenue Auction Rate Bonds outstanding. These bonds were issued in four series- in
2002, 2003, and 2004 under "mufti- modal" documents and were insured by "AAA"
rated bond insurers at the time of issuance. The bond documents, which were
approved by the Cities of Dallas and Fort Worth, provide that the bonds would initially
be issued in a variable rate auction mode, but could be converted to a traditional fix
rate mode without further action by the two City Councils. This was done to allow a
timely conversion to fixed rate bonds if short term interest rates rose quickly or if
market conditions required a fixed rate remarketing. DFW's auction rate bonds are
auctioned for 7, 28, or 35 day periods.
The purpose of this letter is to notify you that DFW will be remarketing these bonds as
fixed rate bonds in March 2008 due to market conditions. The good news is that this
has been a very successful program for DFW. We have realized over $40 million in
debt service savings since 2002 due to-lower interest rates. Unfortunately,�the
deteriorating market conditions require us to make this change.
The deteriorating market conditions have resulted because several of the AAA
insurance companies were recently downgraded from "AAA" to "AA" or "A" by one
or more of the rating agencies primarily because of significant exposure to sub -prime
mortgage instruments that they have insured. Investors in municipal bonds typically
look at the insurance company rating (i.e. " AAA ") rather than the underlying credit of
the issuer (i.e., "A "t "AA" for DFW) when they buy bonds. The downgrades have
thrown the auction rate market into disarray causing investors to require higher and
higher rates of return for auction bonds, even though the underlying credit ratings of
the issuers have not changed. In some cases, auctions have not received enough bids
to clear all the bonds. When this occurs, the current owners of the bonds hold the
bonds beyond the original auction period until a successful auction is held This is the
situation for most of the issuers of auction rate bonds today. In DFW's case, most of
our brands are now being held by the unclerrnrriters.
02- 2 ?- 08P05:09 RCVD
If you have any additional questions, please do not hesitate to contact me at
972.973.5200 or our Chief Financial officer, Chris Poinsatte, at 972.973,5210.
Sincerely,
/'a �Xr'
Jeffery P. Fegan
Chief Executive Officer
c. Dallas City Council Members
DFW` Board • Directors
Dale Fisseler, Fort Worth City Manager
David Yett, Fort Worth City Attorney