Kentucky raised $110 million through a private placement to finance the long-awaited payment of outstanding contracts with the public-private partnership building its statewide broadband internet network, a project that was almost derailed by delays, cost overruns and lawmakers’ objections.
The Kentucky Bond Development Corp. on Monday placed the 30-year bonds with Morgan Stanley.
The deal was structured as $104.36 million of bonds plus a $14.6 million premium to raise a total of $118.96 million, according to a
Bond proceeds are being used to pay the $110 million settlement, $8.25 million in capitalized interest, and $703,564 of issuance costs.
Ross, Sinclaire & Associates LLC is the conduit issuer’s financial advisor. Commonwealth Economics and Public Resources Advisory Group are financial advisors for the authority, which was the borrower.
Dinsmore & Shohl LLP is bond counsel. Stites & Harbison PLLC is the purchaser’s counsel.
“We do not want to comment until the transaction is closed,” Kentucky Communications Network Authority spokesman Randy Lutke said in an email Wednesday. Closing is expected July 19.
Lutke said the issuance may be rated by Fitch Ratings and Moody's Investors Service.
The long-pending deal almost didn’t happen.
The Kentucky Communications Network Authority requested on June 19 that the Legislature’s Capital Projects and Bond Oversight Committee approve the bond issue to finance the payment of outstanding contractual expenses caused by delays.
The panel rejected the request, and submitted its recommendation to Finance and Administration Cabinet Secretary William Landrum. Landrum
“The authorization for the Kentucky Communications Network Authority to incur this debt was codified by the Legislature,” Landrum wrote. “As none of the concerns raised by the committee in its recommendation appear to have any bearing on the substance or terms of this debt issuance, I feel it is in the best interest of the Commonwealth that this project proceed.”
Gov. Matt Bevin announced June 28 that the first phase of the state’s KentuckyWired high-speed broadband network had been completed after suffering delays and cost overruns.
The first phase covers 1,600 miles of the “backbone” system. When completed in 2020, the 3,000 miles of fiber optics will cross all 120 counties in the state, and internet service providers will use it to sell service to homes and businesses.
Bevin said he was committed to finishing the project, and funding the state’s first availability payment P3.
In was nearly derailed in early 2018, when the Legislature passed a budget that didn’t include line-item funding for the bonds. After Bevin vetoed it, the Legislature adopted a budget amendment providing for the payment of debt service from the general fund.
When the project was first financed in 2015, Fitch called it a first-of-its kind P3 deal.
In March, Fitch affirmed its BBB-plus ratings on $232 million senior tax-exempt revenue bonds and $58 million of senior taxable revenue bonds issued in 2015 to finance construction, and removed its rating watch negative due to the execution of the global settlement agreement between the state, the concessionaire, and the design-build contractors to resolve delays in the construction schedule.
Moody’s in December affirmed its Baa2 rating and stable outlook.
The Kentucky broadband project was The Bond Buyer’s 2015 Deal of the Year award winner. That year it also won the Council of Development Finance Agencies’ Excellence in Development Finance Project Award.
