BRADENTON, Fla. — On the heels of a rating upgrade to triple-A, the Louisville/Jefferson County Metro Government Water Works Board in Kentucky tomorrow plans to competitively sell $78.5 million of tax-exempt advance refunding bonds and $127.8 million of federally taxable Build America Bonds.

Citing strong financial operations, Standard & Poor’s raised its rating on the board’s debt to AAA from AA-plus and assigned the highest rating to the bonds being sold tomorrow. Moody’s Investors Service rates the bonds Aa1.

Standard & Poor’s upgrade has the “high potential” to decrease the cost of debt by as much as 5 basis points and it has helped generate investor interest, said Amber Halloran, the board’s vice president and treasurer.

Tomorrow’s offering is expected to be structured as $78.55 million of Series 2009A refunding revenue bonds with maturities from 2010 to 2025, and $127.8 million of BABs maturing from 2012 to 2029.

The BAB proceeds will be used to renovate and upgrade the utility’s main water treatment plant, to replace and install new transmission water main projects, and to complete a filtration project to provide a cleaner source of water from the aquifer. 

The advance refunding is to take advantage of lower interest rates and refinance all or portions of the board’s Series 2000 and 2001 bonds within existing maturities. The refunding is expected to achieve present-value savings of approximately 7%, or about $485,000 a year on interest, Halloran said.

With a dramatic decline in the Municipal Market Data yield curve the past few weeks, it’s possible that the total amount of BABs could be reduced and the tax-exempt portion increased, but that depends on market conditions, said Kevin Thompson, a senior vice president and public finance banker at Morgan Keegan & Co., the water board’s financial adviser.

“We still see value in the BABs although Treasury is moving around with the unemployment numbers,” said Thompson, adding that a final decision on the structure would be made today. “We are telling potential bidders to check the wires.”

About $1.5 billion of the $10 billion of debt being marketed this week is being sold competitively, but Thompson said he expects the sale to go well because investors in search of high quality paper have shown early interest in the Kentucky deal.

Investors and groups putting together syndicates have called the state since bond documents were released and the rating upgrade was announced, according to Halloran.

This week’s sale is part of the board’s continued business strategy to make improvements and expand, said Greg Heitzman, president and chief executive officer. He also said the rating upgrade would also help the water system attract new wholesale customers.

Standard & Poor’s analyst Scott Garrigan said the upgrade reflected “continued financial operations that are in our view strong, as well as comprehensive financial and capital planning that we expect will support strong financial performance on an ongoing basis.”

Other factors included a a history of rate increases, coverage of debt service that is expected to remain more than two times even after a subordinate dividend payment to the metro government, and a manageable capital plan. The water board has increased rates each year over the past 12 years, according to bond documents.

Moody’s cited similar attributes about the board and its “long-term trend of well managed financial operations.”

In January, the board expects to make a dividend payment of approximately $17.8 million to the Louisville/Jefferson metro government. The board operates under its own governance and provides water service to more than 850,000 people in Jefferson County. It also provides retail and wholesale services to five other counties.

Bond and disclosure counsel for ­tomorrow’s offering is Frost Brown Todd LLC.

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