Delayed amid pandemic, Kentucky reimbursement now depends on rates

The Kentucky Public Transportation Infrastructure Authority approved the sale of up to $443.8 million in tax-exempt bonds to repay a loan taken out in 2013 under the Transportation Infrastructure Finance and Innovation Act.

Delayed during the COVID-19 pandemic, repayment now depends on savings that can be made in a rising interest rate environment.

In 2018, the KPTIA began looking for opportunities to repay the US Department of Transportation’s TIFIA loan, which has an interest rate of 3.88%. In 2019, it began the process of issuing tax-free redemption bonds, according to a presentation by KPTIA’s financial adviser, Public Financial Management.

The Abraham Lincoln Bridge, right, opened in 2015 with bond financing from the Kentucky Public Transportation Infrastructure Authority.

Bloomberg News

The sale, along with a takeover bid, would also have paid off debt from the 2013 sale of $727.9 million of first-level toll revenue bonds for the Downtown Crossing project.

Kentucky and Indiana have worked together to develop a cross-border mobility project between Louisville and Clark County, Indiana. Completion of the bridge and toll, which began on December 30, 2016, was the largest public infrastructure project ever undertaken by the Commonwealth and was completed on time and under budget.

Highlights of the Louisville-South Indiana Ohio River Bridges Project are the two new bridges, the Abraham Lincoln Bridge in downtown Louisville and the Lewis and Clark Bridge eight miles upstream on the Ohio.

The Downtown Crossing project was a critical part of the plan and included the acquisition, financing, and construction of the Lincoln Bridge over the Ohio River from downtown Louisville to Jefferson, Indiana, as well as the reconstruction and reconfiguration of the nearby Kennedy Bridge. . He also upgraded the Kennedy Interchange and reconfigured the approaches to the bridge on the Indiana side.

Last September, the authority planned to issue $191.8 million of Series 2021 fixed-rate first-tier taxable redemption bonds amid speculation that some changes to the TIFIA program would allow for a rate rest. ready. A taxable sale in addition to the loan reset was seen as a source of greater savings. Ultimately, it was determined that a rest loan was not eligible to be enacted.

However, an exchange of bids for some of the bonds issued has been made in 2021, PFM chief executive David Miller told the KPTIA board on Monday when he approved the bond issue.

He said some of the existing bondholders offered their 2013 bonds in exchange for new tax-free bonds; for bonds that were not offered or exchanged, KPTI sold a taxable issue with prepayment.

“The total bond amount in total was approximately $185 million and that was in two series, 2021A and 2021B,” Miller said. “We achieved net present value savings of $58.5 million…the amount of present value savings as a percentage of the nominal amount repaid of the bonds…in our case was 32% – and that’s a little off the charts. graphics. We’ve really realized a lot of benefit and that benefit goes to the project in terms of improved cash flow to pay for capital improvements, potentially including the replacement of the Kennedy Bridge in the future.

On Monday, KPTIA cleared PFM to proceed with a tax-exempt sale, the exact timing of which will be determined at the discretion of the financial advisor and bond advisor when market conditions appear appropriate.

PFM said it was considering taking out bond insurance to secure a higher credit rating and lower interest rate on the deal.

Last year, before the taxable refund, Moody’s Investors Service raised KPTIA’s underlying rating to Baa2 from Baa3 and Fitch Ratings raised its underlying authority rating to BBB from BBB-minus. Fitch also raised its outlook to positive; Moody’s assigned a stable outlook. The bonds were insured by Assured Guaranty Municipal Corp.

The objective of the upcoming agreement is to achieve savings of at least 1% of the total principal amount of the loan amount repaid. The TIFIA loan has a current balance of $443.8 million.

Although this target is lower than the typical KPTIA target, reimbursement may provide additional benefits by eliminating any possible revenue sharing with TIFIA and reducing reporting requirements.

“At the start of this year, we were estimating quite a bit of savings using this strategy, $43 million, or almost 10% of par paid off,” said Roger Peterman, managing partner at law firm Dinsmore & Shohl LLC. . “But I’m sure you know the market has changed a lot in the last two months – it’s up over 100 basis points.

“So although we have started to take the initial steps to make a repayment, at this stage we would not be executing a repayment because we would not have the levels of savings that we think are adequate,” he said. he declares.

Still, he noted that the authority’s vote to approve a refund now gives him the flexibility to act quickly if market conditions turn more favourable.

Kentucky is experiencing an economic recovery as the pandemic fades from the public eye.

Governor Andy Beshear last week said the $22 billion budget for fiscal year 2022-2024 passed by the General Assembly builds on the economic momentum the state is experiencing.

He said he was making substantial new investments in infrastructure, such as high-speed internet, cleaner water, and roads and bridges, while making it easier for businesses to locate in the state.

“These are the areas we must invest in today to help the Commonwealth become a national leader in turning two years of incredible progress into 20 years of prosperity for Kentucky families,” Beshear said in a statement. “With these dollars, we will make major investments in critical infrastructure needed to build a better Kentucky and create and attract the jobs of the future.”

The governor’s budget proposal was based on a record revenue surplus, with the General Fund seeing $1.9 billion more than expected.

The state will receive an additional $100 million from the federal infrastructure bill and spend more than $2.3 million in public funds over two years to support broadband internet expansion and create an Office for Broadband .

Last year, the Kentucky Broadband Deployment Fund was created with $300 million in public funds to address the connectivity needs of unserved and underserved communities. Combined with at least 50% of required matching federal investments, a minimum of $600 million will support broadband expansion in Kentucky, the governor said, creating more than 10,000 direct and indirect jobs.

For transportation, the budget provides $250 million from the general fund for major transportation infrastructure projects. Three projects were specifically targeted – the Brent Spence Supplemental Bridge Project, the I-69 Ohio River Crossing at Henderson, and the completion of the Mountain Parkway Expansion Project.

Beshear said these one-time funds are intended to provide flexibility to meet state matching requirements for expected federal grants.

The governor said that with all businesses moving to Kentucky, continued efforts to improve the state’s infrastructure were imperative.

Additionally, the budget expands efforts to improve water and sewer systems and includes $250 million to support the Better Kentucky Plan’s cleaner water program.

Kentucky’s seasonally adjusted preliminary unemployment rate in February was 4.2%, the Kentucky Center for Statistics reported late last month.

February’s preliminary unemployment rate was down 0.2 percentage points from the 4.4% recorded in January and 0.5 percentage points from the 4.7% recorded over the same period. a year ago.

The seasonally adjusted U.S. unemployment rate for February was 3.8%, down from 4% in January, according to the U.S. Department of Labor.

The State of Kentucky is rated Aa3 by Moody’s Investors Service, A by S&P Global Ratings, and AA-minus by Fitch Ratings and Kroll Bond Rating Agency. S&P has a positive outlook on government while the other three agencies assign a stable outlook on credit.

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