Fitch Rates Kentucky Asset/Liability Commission's $400MM TRANs 'F1+'

2008-06-11 01:40:32 -

- Fitch Ratings assigns an 'F1+' rating to the Kentucky Asset/Liability Commission's approximately $400 million general fund tax and revenue anticipation notes (TRANs, or the notes), 2008 series A. The TRANs are expected to sell through negotiation on or about June 17, 2008. The notes are due June 25, 2009 and are not callable. Fitch also affirms the 'F1+' rating of the commission's outstanding $350 million 2007 series A TRANS, due June 26, 2008.

The TRANs will be used to finance Kentucky's fiscal 2009 cash flow needs. The notes have a priority lien on all general fund revenues. The 'F1+' rating is based on the strength of the security, the significant amount of other state moneys that may be borrowed by the general fund, and the comfortable coverage to be provided by remaining general fund balances. Prior to note repayment, projected general and available budget reserve trust fund balances approximate $521.2 million in June 2009, resulting in 1.3 times (x) coverage of TRAN repayment requirements. The TRANs will approximate 4.0% of projected general fund cash flows in fiscal 2009. A general fund and available budget reserve trust fund cash balance of $109.4 million, or only 1.1% of cash flows, is projected at the end of the fiscal year following note repayment. However, borrowable funds create a significant additional cushion, increasing coverage of note repayment requirements to 6.0x or approximately 19.5% of cash flows. Average borrowable cash balances in other funds were over $1.9 billion in the first 10 months of fiscal 2008; above the average balances of $1.6 billion of one year ago.

Fiscal 2008 cash flow operations have fallen below projections developed when last year's notes were sold, owing primarily to lower than anticipated revenues. The Commonwealth's consensus forecasting group has revised expectations downward on three occasions since August 2007 and total general fund growth for fiscal 2008 is now projected at 0.7% over fiscal 2007. Through May 2008 or 11 months of the fiscal year, general fund receipts were up 1.2% versus a year ago. A $200.6 million ending cash balance, including the available portion of the budget reserve, is estimated for June 30, 2008, compared to the $457.3 million projection last year. While the Commonwealth projects a fiscal 2008 total budget reserve fund balance of $231.5 million, prior to a budgeted drawdown before fiscal year-end, statute stipulates in the event of a revenue shortfall that 50% of the fund's balance be available in the second fiscal year of a biennium.

The Commonwealth's economy continues its gradual expansion. Between 2000 and 2003, employment in the state declined 2.3%, which was more than the national rate of job loss. In 2004 the economy began to recover and from the end of 2003 to 2007 employment grew 4.8% versus the national rate of expansion of 5.9% over the same period. Through April 2008, employment growth registered 0.9% over levels of one year ago, while the U.S. rate of increase was 0.3%. Manufacturing employment, which has an above-average presence, continued its downward trend and year over year gains were strongest in the government (2.8%), leisure and hospitality (1.7%) and trade, transportation, and utilities (1.5%) sectors. Kentucky's per capita personal income over the last 10 years has consistently been just over 80% of the U.S. average and currently ranks the Commonwealth 46th among the states for this measure.

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Fitch Ratings, New York.
Kyle R. Gephart, +1-212-908-0661
Richard J. Raphael, +1-212-908-0506
Christopher Kimble, +1-212-908-0226 (Media Relations)