KY Transportation Agency: Move forward with bridge bonds - WDRB 41 Louisville News

Ky. transportation agency: Move forward with bridge bonds

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FRANKFORT, Ky. (WDRB) – Kentucky moved closer to completing its financing for the Ohio River Bridges Project on Thursday after a state transportation agency agreed to sell $753 million in bonds by the end of the year.

At a special meeting, the Kentucky Public Transportation Infrastructure Authority approved issuing bonds that will require $2.1 billion in tolls from drivers to pay back over the next four decades.

The bonds' interest rates and other details are expected to be finalized next month, and finance officials anticipate the deal will close Dec. 20.  

Few members of the largely governor-appointed panel asked questions about a slew of documents they approved, but the board was able to review the information starting last Friday, members and transportation officials said.  

Kentucky Transportation Secretary Mike Hancock, the authority chairman, told members that the deal was crafted with care.

"We have documents that are very worthy of approval," he said.

Indiana already has secured its financing for an upriver bridge linking Utica, Ind., and Prospect, Ky., but Kentucky hasn't yet raised all of its money for a downtown span next to the Kennedy Bridge and a reconfigured Spaghetti Junction interchange.

The two states will evenly split toll revenue. Kentucky will use its money to pay off debt and stock a fund for operating and maintaining the new roadways.

There's no requirement that Kentucky contribute to debt payments if toll revenues fall short, placing some risk on investors considering buying the bonds. However, the Transportation Cabinet must seek a loan from the state road fund if toll money is inadequate to keep the maintenance account filled.

Those accounts require deposits of more than $15 million a year for much of the project's debt repayment, which will last until 2054, according to financing documents released Thursday.

The bonds still must receive ratings from Moody's Investors Service and Fitch Ratings, which determine the risk of the securities. Kentucky officials expect ratings one notch above speculative, or non-investment grade, status.

"Investment grade is considered a high probability of repayment," said David Miller, managing director of Orlando, Fla.-based PFM Group, the infrastructure authority's consultant. He said the anticipated ratings aren't "unusual or unexpected" when compared with other new toll roads.

"There's an advantage in not being higher," said David Talley, deputy executive director of the Kentucky Transportation Cabinet's office of budget and financial management. "We could pull the rating up by putting the road fund behind the debt service, but here the bond holders are taking the majority of the traffic and revenue risk."

Miller and the state officials hesitated to give reporters the anticipated interest rates for the bond issue because it involves differently structured series of debt. But, for instance, Miller said the average interest rate of the $301 million in toll-backed bonds is 6.96 percent.

Ryan Barrow, executive director of the Kentucky Finance and Administration Cabinet's office of financial management, called that rate "well within normal" for the 40-year payment period.

The Frankfort meeting was mostly attended by government officials, bankers, public relations executives and media. Tyler Allen, a Louisville businessman and co-founder of the movement to build only one bridge, was the only person who attended as a citizen.

Allen said he wanted to hear firsthand the financing details of the project.

"The state does not appear to be on the hook for debt service. They are on the hook for maintenance, which will be expensive on this big new road system," Allen said after the meeting.

An annual project budget will include a review of toll revenues, Miller said. If those revenues aren't meeting debt service and maintenance needs, he said, the agency is required to have independent consultants recommend ways to cut costs or increase toll revenues.

The authority is then "bound to implement the recommendations of those consultants," he said.

Allen said his fear is that one way to meet debt payments will be to raise toll rates, which are projected to be $1 to $12 per crossing and expected to increase 2.5 percent a year.

"I've always believed the big risk is what they'll do to toll rates, and it can be that much more expensive for the citizens of our region," he said.

Kentucky already has secured $516 million for the project. That includes:

  • $250 million in state highway funds already approved by the Kentucky General Assembly
  • $237 million in bonds, to be repaid with future highway fund revenues
  •  $29 million in highway fund-backed bonds yet to be issued

The financing plan approved Thursday includes:

  • $301 million in toll-backed bonds 
  • $452 in bond-anticipation notes

The bond-anticipation notes would be used to help pay for construction but would eventually be replaced, starting in 2017, by a federal transportation loan Kentucky is pursuing, officials said.

The toll bridges – the two new spans and the existing Kennedy Bridge – are to be tolled starting in 2016.

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