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DENVER-The Denver Urban Renewal Authority is issuing $275 million in bonds to fund the next level of infrastructure work at Stapleton. Of the bonds, which will be paid back through tax increment financing, $200 million is going to fund infrastructure at the former airport, as well as a new Denver Public School.

Those bonds, which carry an 8% interest rate, are scheduled to be purchased Wednesday in a private placement by Lehman Brothers. Also on Wednesday, Merrill Lynch, through a private placement, is scheduled to buy $75 million in bonds. The bonds will carry an initial rate of 5.9%.

However, they will be “swapped” for an interest rate of 5.3% from 2003 to 2007. This is the first time DURA has used interest swaps, although they are common in municipal financing, says Rus Heise of RBC Dain Rauscher Inc. The bonds will be used to replace previously issued bonds that carried an interest rate of 10%.

The Denver City Council, with one dissenting vote, already has approved the transaction.

Councilwoman Jeanne Faatz didn’t object to the financing scheme itself, but says that she is concerned Denver is now No. 9 in position to be paid back, if Stapleton, which is being developed by Forest City, doesn’t generate enough income to pay back the bonds. In the past, Denver was No. 1, but now the bond holders are in a better position, she says.

But Councilman Michael Hancock, whose District 11 includes Stapleton, says that in today’s market, concessions had to be made to get a lower interest rate. “We need to encourage this kind of economic development,” Hancock tells GlobeSt.com. “It’s great for the entire city.”

Much of the bonds are expected to be paid back from Forest City’s planned Northfield development. Northfield, north of Interstate 70 at Quebec Street is a 1.2-million-sf “Power Town” that will include department stores, the area’s first Bass Pro Shop, a 16-screen movie theater and an old-fashioned Main Street. It’s scheduled to open in the fall of 2005.

Of the $200-million issuance, $19.5 million is to go toward building a new Denver Public School.

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