Dallas-Ft Worth airport is the latest victim of auction-rate bond failures.....

[marmar]

from Bloomberg:



Auction Failures Rise to 71% as Dallas-Area Airport Refinances

By Jeremy R. Cooke and Darrell Preston

March 28 (Bloomberg) -- Auction-rate bond failures rose to about 71 percent this week, forcing borrowers from Dallas and Fort Worth's airport to Ascension Health in Missouri to refinance the debt and avoid paying penalty interest rates.

The amount of auctions that failed to draw enough buyers to a market that also includes debt of student lenders and closed- end mutual funds increased from 69 percent last week, according to data compiled by Bloomberg. Rates are set through a bidding process managed by banks typically every seven, 28 or 35 days.

States and municipalities are fleeing the auction-rate market after it began collapsing about seven weeks ago as investors balked at buying the securities on concern about the creditworthiness of bond insurers guaranteeing the debt. Dealers stopped purchasing the unwanted debt, and the average rate for weekly municipal auction bonds rose to 6.56 percent on March 19, from 3.63 percent on Jan. 16, based on the latest public data from the Securities Industry and Financial Markets Association.

``The auction-rate market is just going to keep getting worse,'' said Michael Phemister, the vice president of finance at Dallas-Fort Worth International Airport, the world's third busiest airport by takeoffs and landings.

The airport, known as DFW and owned by the two cities, converted $337 million of auction debt to new bonds with fixed rates as high as 6.25 percent that will be paid through at least November 2009. Some of the penalty rates on the auction bonds were poised to go higher, after one insurer lost an investment- grade rating, Phemister said. .......(more)

The complete piece is at: http://www.bloomberg.com/apps/news?pid=20601087&sid=abRsV3HPMYxE&refer=home

[DFW]

1. Talk about scary story hitting close to home..........

[Uben]

4. I had some Alliance Airport bonds.....

....for about 6yrs. They were paying nearly 9%, but were called after six years. I'm out of the bond market now. While I have taken a beating in stocks this year, I did quite well last year. My earnings last year have offset my losses this year, but I'm in it for the long haul.

I have investment properties in Dallas that allowed me to retire a few years back. People will always need a place to live, and I am much more invested in real estate than stocks. I did take a beating from 2001-2005 when the telecom sector in north Dallas went bust. I had properties on Spring Valley Rd when they were digging the tunnel under North Central expressway (disrupting traffic) at about the same time I was losing clients from the telecom bust. That's all over now, and we are enjoying a 98% occupancy rate!

Hey, things are pretty good here in the DFW area compared to the rest of the country.

[DFW]

6. Comparatively, that's true.

Now, if they would only fix all of American's MD-80s and start posting
terminals of departure at the airport again...........

[Clear Blue Sky]

2. The Chinese will buy the airport...

[DFW]

3. As long as they put decent Szechuan restaurants in every terminal

I'd welcome them with open arms. Besides, then we'd not have to worry about them going bankrupt.

[A HERETIC I AM]

5. There is good news in this story.....

The airport will pay 6.125 percent on $56 million of 10- year bonds through late next year, when it has the option to buy back the bonds at face value. It faced a possible penalty rate of 2.75 times one-month Libor, or about 7.43 percent, on its auction bonds.

``Anyone who buys this bond knows there is a high probability we will refund in 18 months,'' Phemister said. ``It gives us some flexibility.''

What this means is the airport has removed this $56 mil from the Auction Rate Securities market and re-issued the debt as a more conventional, 10-year bond at a fixed rate. These new bonds have a "Call" provision which means the issuer (DFW Airport Authority) can buy the bonds back at par ($1000 ea.) if interest rates move in their favor. This is a good thing. It gets their debt out of the ARS market which has become less liquid and into the traditional bond market where it really belongs.

Just because these auctions fail, it does not mean the bonds have defaulted. The concern for issuers like DFW is the interest rate they have to pay bond holders resets to an unwanted and more expensive higher rate when the auctions fail. Removing this debt from that particular market is the best possible thing they could do.