Potential Adverse Actions Resulting From SEC Investigation and Bondholder Lawsuits

The City of Denver has advised us that the Securities and Exchange Commission (SEC) is conducting a formal investigation regarding the adequacy of the city’s disclosure of information in bond offering documents with respect to the automated baggage system and related delays in opening the airport. DIA’s Ability to Meet Its Financial Obligations

Based on our review of DIA’s long-term budgets and the data available on actual operations from its opening on February 28, 1995, through August 31, 1995, we found no significant issues which would lead us to believe that DIA will be unable to meet its financial obligations. Debt service costs are expected to remain relatively stable over the next 30 years. Operating costs are expected to rise with inflation over that time frame. We compiled DIA’s actual cash flows for March through May 1995 and found that DIA produced a positive cash flow of $1.5 million in its first 3 months of operations. DIA Cash Reserves

As of September 25, 1995, the date of DIA’s latest available reserve fund statement, DIA had an operating cash balance of $57 million and held $420 million in reserve funds. In the event of a temporary financial crisis, about $260 million of these reserve funds could be used, subject to certain restrictions. Operations and Maintenance Reserve Fund. GAO Comments

1. See the “Health of the Airline Industry and United Airlines” section of the report. 2.
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the Denver International Airport's (DIA) financial condition, focusing on DIA: (1) cash reserves and estimated cash flows; and (2) ability to meet its financial obligations.

What GAO Found

GAO found that: (1) predicting the future financial performance of DIA is difficult, since it has been operating for less than 1 year; (2) the difficulties in projecting DIA financial performance relate to the volatility of the airline industry, unexpected construction delays and costs, and the city of Denver's ability to repay airport investors; (3) the Securities and Exchange Commission is formally investigating the adequacy of the city's disclosure of information in bond documents with respect to delays in opening the airport; (4) there is no evidence that DIA will be unable to meet its financial obligations, since DIA has generated positive cash flows in its first 6 months of operation despite operating at well below capacity; (5) DIA debt service costs are expected to remain stable over the next 30 years, while operating and maintenance costs are expected to rise with inflation; and (6) as of September 1995, DIA had an operating cash balance of $57 million and held $420 million in reserve funds, of which $260 million could be used in the event of a financial crisis.