BRADENTON, Fla. — Kentucky on Tuesday is set to price the first of two deals that will bring just over $500 million to market in less than two weeks.

The state plans to competitively sell $145.8 million of lease-revenue bonds Tuesday to complete work on a new state mental hospital that is replacing a pre-Civil War facility.

The hospital bonds are being sold by the Lexington-Fayette Urban County Government Public Facilities Corp.

This deal precedes an estimated $362.3 million offering of lease-appropriation obligations by the Kentucky State Property and Buildings Commission that is set to be priced by Citi next week.

Competitive "all or none" bids for the hospital bonds on Tuesday will be taken until 11 a.m. Eastern Daylight Time via the BiDCOMP/Parity platform.

The deal is structured with serial maturities between 2014 and 2033, with two or more consecutive maturities possibly designated as term bonds.

Morgan Keegan & Co. is the financial adviser to the Lexington-Fayette Urban County Government Public Facilities Corp.

Proceeds will redeem interim financing of $65 million of general obligation bond anticipation notes issued by Lexington-Fayette Urban County Government for the design and construction of the new state mental health hospital on the University of Kentucky's Coldstream Campus in Fayette County.

Bond proceeds will also provide additional funding for the project as well as pay for capitalized interest and issuance costs.

The bonds are secured by lease payments subject to biennial legislative appropriations. Bondholders have no security interest in the project itself.

The $129 million project is replacing Eastern State Hospital, which opened in 1824 to provide mental health services to 50 central and southern Kentucky counties.

"This project has been a collaborative effort among Lexington, the University of Kentucky, the Kentucky Community and Technical College System, and the commonwealth," said Tom Howard, executive director of the state's Office of Financial Management.

Construction on the new 300,000-square-foot facility began about a year ago and is "ahead of schedule and under budget," according to a marketing presentation. Completion is expected in spring 2013.

"Since this project is supported by general fund lease appropriations, as opposed to project revenues, I expect that the [investor] appetite will be the same as for any other state general fund lease-appropriation-supported transaction," Howard said. "I also believe that investors will appreciate the essential mission of this facility and the long-standing support that it has had from the General Assembly, which dates back to 1816."

The bonds are rated AA-minus by Fitch Ratings, Aa3 by Moody's Investors Service, and A-plus by Standard & Poor's.

Fitch and Moody's placed negative outlooks on the bonds due to their link to appropriations from the state, and negative outlooks on Kentucky's lease-appropriation ratings of AA-minus and Aa2. Standard & Poor's assigned a stable outlook.

Meanwhile, the State Property and Buildings Commission plans to sell $362.3 million of new-money and refunding revenue bonds next week. A retail order period is scheduled for June 21 with institutional pricing on June 22.

The offering is structured in two series with $349.58 million of bonds in tax-exempt Series A and $12.69 million of taxable Series B debt.

Howard said there are three components to the transaction.

About $110.1 million of new money will finance projects authorized by the General Assembly in 2005, 2006, 2008 and 2010, including various water and sewer improvements.

The remainder of the issuance will refund outstanding bonds for debt service savings and will restructure the debt service on existing bonds for budgetary relief.

The bonds have been rated AA-minus by Fitch and Aa3 by Moody's, both with a negative outlook.

Standard & Poor's had not released a rating by press time.

Along with Citi, others in the syndicate are Bank of America Merrill Lynch, Edward D. Jones & Co., First Kentucky Securities Corp., J.J.B. Hilliard, W.L. Lyons LLC, Morgan Keegan & Co., Morgan Stanley, PNC Capital Markets LLC, Ross, Sinclaire & Associates LLC, Sterne, Agee & Leach Inc., and Stifel, Nicolaus & Co.

Peck Shaffer & Williams LLP is bond counsel on both deals. Frost Brown Todd LLC is underwriters' counsel for next week's offering.

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