Fitch Rts State of Kansas DOT Adj Tender Highway Rev Bonds Series 2008A 'AA/F1+'

2008-04-30 23:50:10 -

- Fitch Ratings assigns a rating of 'AA/F1+' to the $150,870,000 State of Kansas Department of Transportation (KDOT) adjustable tender highway revenue bonds series 2008A consisting of $23,000,000 series 2008A-1; $38,900,000 series 2008A-2; $595,000 series 2008A-3; $50,275,000 series 2008A-4; and $38,100,000 series 2008A-5. KDOT's long-term 'AA' rating reflects the broad-based and diverse revenue stream of the state highway fund and protections afforded by the 3 times (x) additional bonds test and a covenant by the state to ensure revenues in the fund cover annual debt service 3x.

The short-term 'F1+' rating is based on the liquidity support provided by Wachovia Bank, National Association in the form of a standby bond purchase agreement (SBPA). The SBPA provides for the payment of the purchase price of tendered bonds during the weekly and daily rate modes if remarketing proceeds are insufficient to pay the purchase price. The SBPA is sized to provide for the entire principal amount of the bonds, plus 34 days of interest at the maximum interest rate of 10%, based on a year of 365 days. SBPA will expire on Nov. 1, 2010 unless such date is extended or upon the occurrence of other events of termination, according to its terms. Fitch's short-term rating on the bonds will expire upon any expiration or termination of the SBPA. Wachovia Securities is the underwriter and initial remarketing agent for the series A-1, A-2 and A-5 bonds Merrill Lynch & Co. is the underwriter and initial remarketing agent for the seriesA-3 and A-4. The bonds are expected to be available for delivery on or about May 13, 2008.

The bonds initially bear interest in the weekly rate mode and maybe converted to a daily, term, commercial paper, auction or fixed rate interest rate mode. While the bonds bear interest in the weekly rate mode, interest is payable on the first business day of each calendar month, commencing June 2, 2008. The bonds are subject to mandatory tender: (1) at the end of each interest rate period while the bonds are in a Commercial Paper Mode; (2) on a mode change date; (3) at the end of an interest rate period for bonds in a term rate mode; (4) upon the substitution, termination or expiration of the liquidity facility. The bonds are also subject to optional and mandatory redemption provisions.

Highway revenue bonds are issued for a comprehensive transportation program that is the state's principal capital focus. They are payable on parity, as special obligations of the state, secured by and payable from a gross pledge of all revenues in the state highway fund. The revenue stream is broad-based and diverse, including highway user revenues, a portion of the state's general 5.3% sales and use tax and federal aid. The legislature has, and may well continue to, alter the components and/or distribution formulas of the revenues credited to the fund. However, bondholders are insulated from the changes given the state has covenanted to maintain revenues in the highway fund at least equal to 3x coverage of annual debt service. The fund currently includes the constitutionally dedicated state transportation revenues, which consist of 66.37% of fuel taxes and motor vehicle registrations and license fees. Also pledged is the direct credit, at the rate of 0.65% of the state sales and use tax. In Fiscal 2003, the motor fuel tax was increased by 2 cents, bond authority was enlarged and debt refunded and maturities lengthened. A general fund transfer of a percentage of the retailers' sales tax was stopped in fiscal 2003 due to pressures on the general fund and has been repealed.

The state's $1.3 billion 10-year comprehensive transportation program (CTP) was initiated in 1999 as the successor to the completed comprehensive highway program (CHP).The state has expended its authorization under the existing plan; a new multiyear plan is in process. In March 2006, Kansas Development Finance Authority sold $210 million of bonds to support the transportation capital program payable from general fund appropriations, subject to legislative approval.

Coverage levels remain good, bolstered by the increased sales tax allocation. Fiscal 2007 state source revenues cover estimated maximum annual debt service (MADS) by 3.9x; highway user revenues alone provided 2.6x coverage. Federal reimbursements are only permitted to be included in the calculation of the 3x covenanted requirement for additional issuance when the outstanding pre-1999 bonds mature in 2015.The proceeds of the Series 2008A bonds will be used to currently refund the KDOT series 2003C bonds that were reissued for the purpose of refunding certain other bonds, the proceeds of which were used to pay a portion of the costs of construction, reconstruction, maintenance or improvement of highways in the State.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings, New York
Linda Friedman, 212-908-0727
(For information on the short-term rating)
Janet Martin, 212-908-0507
(for the long-term rating or KDOT)
or
Media Relations:
Cindy Stoller, 212-908-0526