BRADENTON, Fla. — Kentucky plans to wedge a $747 million offering into the burgeoning bond calendar next week to finance the major portion of its largest infrastructure undertaking.

Proceeds will go toward constructing the Downtown Crossing portion of the massive Ohio River Bridges project, including $100 million to reimburse the state road fund, which has provided liquidity for work already underway on the $1.3 billion project.

Work on the state's largest transportation project began June 18 to renovate the existing Interstate 65 "Kennedy" Bridge though downtown Louisville, adding a new, adjacent Interstate 65 bridge, and reconstructing interchanges that converge in downtown Louisville.

The new bridge will have six lanes and carry northbound traffic while the renovated existing Kennedy Bridge will have six lanes and carry southbound traffic. All lanes will be electronically tolled though the revenues will be shared equally with Indiana, which is financing and building an additional tolled bridge across the Ohio River known as the East End Crossing.

In its first offering backed by an investment-grade rating for a start-up toll facility, the Kentucky Public Transportation Infrastructure Authority will sell $747 million of bonds and notes by negotiation to retail next Tuesday followed by institutional sales Dec. 11. Citi is the book-runner.

A trader said next week is gearing up to be a “pretty big” one in terms of new negotiated pricings.

“I think the underwriters are going to be doing everything they can to price their deals attractively to get them out of the market,” she said. “Right now there is little liquidity in the street because people are mindful of year end, and this has been a pretty dreadful year for most.”

If the Kentucky deal is priced cheaply enough, there will be demand for it, the trader said.

Because the KPTIA is a new credit, it is reaching out to investors ahead of the pricing with an effort that includes an internet road show, an investor luncheon, a site visit, and one-on-one conference calls, according to Ryan Barrow, executive director of Kentucky's Office of Financial Management.

"We expect the road show to allow the authority to differentiate its credit from other issues pricing the week of Dec. 9, and expect a strong reception for the authority's inaugural issuance," Barrow said.

The transaction will be structured with $295.4 million of first tier toll revenue bonds issued in three series as current interest, capital appreciation, and convertible capital appreciation bonds. There will be serial and term bonds with final maturity in 2053.

Another $452 million of four-year subordinate toll revenue bond anticipation notes will be issued in two series with $423.9 million as tax-exempt debt and $28.1 million as taxable debt.

The notes will be taken out in 2017 and replaced with long-term financing backed by the state's draw on a 35-year, $452 million loan from the Transportation Infrastructure Finance and Innovation Act program.

State officials have estimated that the low-cost TIFIA loan will save $100 million on Kentucky's financing costs.

In addition to state road and federal funds and toll revenue backing the debt, Barrow said Kentucky "made a concerted effort to mitigate project risks."

Those efforts included a "strong" design-build contract, capitalized interest one-year beyond completion of the project, a $41 million contingency fund, a statutory commitment to operate and maintain the project, and a commitment to seek appropriations from the Legislature if needed.

The bonds and amortization structure are typical for a new toll entity, and reflect a revenue stream that will have a ramp-up period after tolls begin in 2017 when the projects opens to traffic, Barrow said.

"The Downtown Crossing project is an existing high-volume traffic corridor serving both local commuters and interstate commercial traffic with known traffic patterns and travel times," Barrow said. "This is not a greenfield project."

Fitch Ratings said it expects to assign BBB-minus, non-speculative ratings to the bonds after receiving legal documents and final pricing, as well as a BBB-minus to the TIFIA loan.

Moody's Investors Service assigned an investment-grade rating of Baa3 to the deal.

Fitch said the project benefits from unlimited tolling flexibility, and the need for both the Downtown Crossing and East End projects to generate sufficient revenue to cover all expenses and meet financial covenants.

"However, the bi-state nature of the toll approval process could result in delays to increases when requested," according to Fitch analyst Chad Lewis. "The covenant of the Kentucky Transportation Cabinet to seek an appropriation to cover any shortfall in operating expenses and renewal and replacement expenses partially mitigates this risk."

Fitch considers the debt structure strong with "midrange" completion risk.

"While the Downtown Crossing project will be constructed pursuant to a fixed-price, date-certain contract, the project represents a complex water crossing and a complex interchange between three major U.S. interstates," Lewis said.

Completion risk is partly mitigated by Fitch's view of the credit quality of the design-builder, Walsh Construction Co., and its historical demonstrated track record of completing large scale projects on time and budget, as well as Kentucky's back-up construction completion guaranty.

In addition to those factors, Fitch said its rating on the notes is also sensitive to any material change in the TIFIA program's ability to meet its loan obligations in order to redeem the Downtown Crossing project subordinate notes.

Public Financial Management Inc., is the authority's financial advisor.

Along with Citi, other members of the syndicate are Edward D. Jones & Co., Fifth Third Securities, First Kentucky Securities Corp., Goldman, Sachs & Co., Hilliard Lyons, JPMorgan, PNC Capital Markets LLC, Raymond James & Associates Inc., and Sterne, Agee & Leach Inc.

Bond counsel is Peck, Shaffer & Williams LLP. Underwriters' counsel is Nixon Peabody LLP.

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