BRADENTON, Fla. — The Kentucky Turnpike Authority plans to price $256 million of new-money revenue bonds next week.
The offering will provide $200 million from a 2009 legislative authorization for the state’s highway construction plan.
Another $56 million in proceeds, from a 2010 authorization, will be used for the Department of Defense’s Base Realignment and Closure activities around Fort Knox.
The plain-vanilla deal is structured using lease-rental bonds, and maturities from 2016 to 2032.
The new bonds are secured with revenues from the Kentucky road fund, which includes motor fuel, motor vehicle usage, license and privilege taxes, and fees.
Goldman, Sachs & Co. is the book-runner of a 13-member syndicate that will offer to retail investors on Tuesday and conclude with institutional sales on Wednesday.
The Kentucky Turnpike Authority is the state’s most popular credit, especially with local retail investors, according to Tom Howard, executive director of state’s Office of Financial Management.
“We are hopeful that this transaction will be well-received by investors given the turnpike’s high ratings, constitutionally dedicated fund source, and the essential nature of transportation infrastructure projects being funded,” Howard said.
The revenue bonds carry ratings of AA-minus with a negative outlook by Fitch Ratings and AA-plus with a stable outlook by Standard & Poor’s.
Moody’s Investors Service rated the bonds Aa2 with a stable outlook, which was revised from a negative outlook. The stable outlook is based on recent revenue rebounds and the expectation for good debt service coverage to continue, the agency said.
Fitch’s negative outlook reflects the state’s reduced financial flexibility from depleted fund balances and revenue shortfalls during the recession, weak pension funding levels, an above-average debt position, and recent use of debt financing for operations, according to a report by analyst Karen Krop.
Fitch also affirmed its AA-minus rating on $7.3 billion of appropriation-backed debt issued by the State Property and Buildings Commission, the Kentucky Infrastructure Authority, the Turnpike Authority, the Asset/Liability Commission, and the Lexington-Fayette Urban County Government Public Facilities Corp.
Krop said the state’s economy is rebounding from the recession “but remains exposed to an outsized and generally contracting manufacturing presence.”
Kentucky’s revenue performance in fiscal 2011 was positive, with 6.5% year-over-year growth, which was higher than the 4.5% increase assumed in the budget, she said. Sales tax revenues underperformed but still grew 3.7%, while personal and corporate incomes taxes and coal severance taxes showed “healthy” increases that exceeded estimates.
Of the $156 million general fund surplus, $35 million was applied to the fiscal 2012 budget and reduced the need for additional budget reductions in the current fiscal year. The other $121 million of the surplus was deposited into the rainy-day fund, “a positive step,” she said.
“The governor’s budget for the fiscal 2012-2014 biennium, however, does propose drawing down the rainy-day fund and further use of debt financing for other post-employment benefits,” Krop said.
Revenues supporting the general fund through the first half of fiscal 2012 were up 3.9% and ahead of the budget forecast.
While the state has nearly $2 billion of authorized-but-unissued bonds, Kentucky is poised to wind down the use of debt in the 2012-2014 biennium if the Legislature approves Gov. Steve Beshear’s recommendations.
“Gov. Beshear’s budget proposes the lowest level of new capital projects since the 1996-1998 biennium,” Howard said.
In the current biennial budget, the governor has recommended a total of $867.5 million of bonds, of which more than half is for state universities. Another $191 million of taxable bonds would finance retired teacher’s post-employment health care benefits as the state continues a six-year phase-in of higher contribution rates.
The Kentucky Turnpike Authority most recently issued $115.17 million of bonds in April. The debt sold with a yield of 2.32% and a 3% coupon in 2016, a yield of 4.05% and a 5% coupon in 2022, and a yield of 5.01% with a 4.87% coupon in 2031.
Underwriters with Goldman Sachs on next week’s offering are Bank of America Merrill Lynch, Citi, Edward D. Jones & Co., First Kentucky Securities Corp., J.J.B. Hilliard, W.L. Lyons LLC, JPMorgan, Morgan Keegan & Co., Morgan Stanley, PNC Capital Markets LLC, Ross, Sinclaire & Associates LLC, Sterne, Agee & Leach Inc. and Stifel, Nicolaus & Co.
Bond counsel is Peck, Shaffer & Williams LLP. Underwriters’ counsel is Stites & Harbison PLLC.
