Kentucky bridge bonds rated one step above "junk"

LOUISVILLE, Ky. (WDRB) – Two credit rating agencies have weighed in on $747 million in bonds Kentucky plans to sell next week to finance its share of the Ohio River Bridges Project.

On Thursday, Moody's Investors Service gave the bonds a Baa3 rating – the lowest of its "investment grade" designations – because of an uncharted tolling environment in Louisville, alternatives to new toll bridges and debt payments that increase over time.

Those factors, and the overall complexity of the downtown bridge project, are "significant credit risks," Moody's analysis wrote.

Fitch Ratings earlier this week announced it expects to rate the bridge bonds BBB-, which also is the firm's lowest rating before it considers debt to be high-risk, commonly called "junk."

Fitch analysts wrote in their analysis that established traffic patterns across the Ohio River help offset the risks associated with a new bridge between Prospect, Ky., and Utica, Ind.

Both ratings agencies give the bonds a "stable" outlook.

Indiana secured its financing last year for its part of the $2.6 billion project – an eastern bridge and the roads leading to it on both sides of the river. Kentucky still hasn't finalized its money, although construction is underway on the state's downtown segments.

The two states will evenly split toll revenue collected on the Interstate 65 corridor – the existing Kennedy Bridge, which will become a southbound-only span; and a new northbound bridge next to it -- and the eastern bridge.

Fitch noted that the project financing "benefits" from the ability to increase tolls by an oversight group of Kentucky and Indiana officials, but "[T]he bi-state nature of the toll approval process could result in delays to increases when requested."

Moody's analysts wrote that the project strengths include proven downtown traffic, and they expect enough toll revenue to meet debt payments, as well as reserve accounts.

At the same time, Moody's warned that drivers may choose to avoid tolls downtown by taking the adjacent Clark Memorial Bridge or I-64 Sherman Minton Bridge.

Kentucky plans to sell $295.4 million in toll backed bonds and $452 in bond-anticipation notes. The notes would be used to help pay for construction but would eventually be replaced, starting in 2017, by a federal transportation loan.

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 Kentucky 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 last month.

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