BRADENTON, Fla. — On the heels of an upgrade for its Garvees, Kentucky tomorrow plans to sell $90 million of the debt for work related to its share of the massive $4.1 billion Louisville-Southern Indiana Ohio River Bridges Project.

Standard & Poor’s assigned a AA to this week’s sale of grant anticipation revenue vehicle notes, an upgrade from AA-minus. Fitch Ratings and Moody’s Investors Service maintained ratings of AA-minus and Aa3.

The notes are being sold by the Kentucky Asset Liability Commission with Citi managing the syndicate for pre-construction work on the ultimate project, which is building two new bridges across the Ohio River. A bi-state authority is developing a finance plan for actual bridge construction.

Kentucky’s Garvee proceeds, the first debt the state has sold for the project, will be used for work that includes right-of-way acquisition, utility relocation, and environmental mitigation in Louisville, and acquiring right of way to reconstruct the downtown Louisville interchange known as “spaghetti junction” where Interstates 64, 65, and 71 converge.

The Series 2010A project funding is structured as fixed-rate tax-exempt term notes maturing in 2020, 2021, and 2022. The structure is designed to wrap around outstanding Garvee notes to achieve level debt payments, said Tom Howard, executive director of the Office of Financial Management.

Howard, whose office is financial adviser for tomorrow’s offering, said the state expects to see interest from retail as well as institutional investors.

“We believe that there will be good Kentucky retail demand in that part of the yield curve for a highly rated credit for which the proceeds will be used on a project of great local interest,” Howard said.

Howard also said taxable Build America Bonds were considered but ruled out given the short duration of the notes and strong tax-exempt demand expected in that part of the yield curve. With the potential for timing issues related to future BAB subsidy payments, Howard said: “We couldn’t quantify that BABs would provide a net benefit.”

Tomorrow’s offering is the first tranche of a $231 million Garvee authorization by the General Assembly for the proposed new bridges. Though additional Garvees will be sold as funds are needed, finance officials project that the balance of the authorization will be sold in late 2011.

The Garvee program, with $344.8 million of outstanding notes, was cited for its “consistently high debt-service coverage, sound bond provisions, and manageable additional debt plans,” Standard & Poor’s analyst Adam Torres said in a statement announcing the upgrade of the notes to AA from AA-minus. All three rating agencies have stable outlooks on the program.

Other firms participating in tomorrow’s sale are Edward Jones, First Kentucky Securities Corp., J.J.B. Hilliard, W.L. Lyons, Morgan Keegan & Co., PNC Capital Markets LLC, Ross, Sinclaire & Associates, and Stifel Nicolaus & Co.

Kutak Rock is bond counsel. Frost Brown Todd is underwriters’ counsel.

The newly organized 14-member Louisville and Southern Indiana Bridges Authority last week began considering options for building the new bridges, including the need to obtain advisory services.

A presentation by Howard and Indiana public finance director Jennifer Alvey reviewed potential funding sources from federal, state, and private sectors, as well as the potential use of revenue bonds.

The two recommended the authority update construction estimates of the project, as well as traffic and revenue studies done in 2007.

Joe Prather, co-chairman of the authority as well as a former Kentucky lawmaker and transportation secretary, said in a statement the panel would move quickly to advance the project. “Our main mission and top priority is to devise the best possible plan for financing this project,” he added.

The authority is scheduled to meet again March 4 and expects to meet the first Thursday of each month.

The federally designated “mega-project” has been a joint effort of the two states for many years but it has stalled because of the lack of funding, particularly in Kentucky, whose share is estimated to cost $2.92 billion. Indiana, whose share is $1.15 billion, has offset a portion of its cost already by setting aside $600 million from the leasing of the northern Indiana toll road.

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