BRADENTON, Fla. — The Kentucky State Property and Buildings Commission today expects to complete pricing $393.3 million of new-money lease revenue bonds, a large portion of which is expected to sell as taxable Build America Bonds.
The book-runner, Morgan Stanley, began pricing the negotiated sale yesterday with retail investors and it concludes today with institutional sales.
Proceeds of the bonds are being used toward funding a variety of projects, including education, economic development, infrastructure development for counties, state mental health facilities, public safety, various university and technical college projects, further development of the Kentucky Horse Park arena, energy-related projects, dam repairs, and others.
The uninsured bond offering is expected to sell as $98.1 million of tax-exempt Series A bonds, $14.2 million of taxable Series B bonds, and $281 million of BABs with maturities to 2029. The bonds are secured by rental income from the state’s biennially renewable leases and are subject to appropriation by the Kentucky General Assembly.
State officials were in New York yesterday for pricing of the bonds and were not available for comment about the structure of the transaction at press time.
The bonds are rated AA-minus by Fitch Ratings and Aa3 by Moody’s Investors Service, both of which assign a negative outlook to the state’s debt primarily because of the recession’s impact on state revenues.
Standard & Poor’s said it assigned an A-plus rating and stable outlook to the bonds, which reflected the risks associated with lease appropriation debt as well as the general characteristics of the state.
Fitch also affirmed its AA-minus rating on the $6.3 billion of appropriation bonds previously issued by Kentucky agencies such as the commission but said it remained concerned about weak pension funding levels and the commonwealth’s rising debt position.
The funding level for the Kentucky Employees Retirement System was 54.5% as of June 30, 2008, according to Fitch analyst Karen Krop.
“The legislature passed pension reform legislation last year, requiring more years of service and higher retirement age for certain workers, with the goal of improving the financial position of the state’s pension systems,” she said.
In discussing Moody’s negative outlook on the debt, analyst Maria Coritsidis said the commonwealth’s economic and financial weakening have led to sizable budget deficits, which officials have dealt with largely through the use of one-time resources and reserve balances.
However, Coritsidis also said the state has a history of active financial management that has enabled it to address fiscal instability.
Other firms in the syndicate for today’s sale are Citi, Edward D. Jones & Co., First Kentucky Securities Corp., J.J.B. Hilliard, W.L. Lyons LLC, Merrill Lynch & Co., Morgan Keegan & Co., PNC Capital Markets LLC, Ross, Sinclaire & Associates LLC, Sterne, Agee & Leach Inc., and Stifel Nicolaus & Co.
Kutak Rock LLP is bond counsel. Frost Brown Todd LLC is underwriters’ counsel.
The commission last sold debt in June when it priced $138.31 million of tax-exempt Series A bonds, $44.92 million of taxable Series B refunding bonds, and $209.23 million of taxable Series C BABs.
The Series A bonds, with maturities from 2010 to 2020, priced with yields ranging from 1% with a 2% coupon in 2010, to 3.36% with a 3% coupon in 2015, to 4.25% with a 4.2% coupon in 2020.