Fitch Rates Kansas DOT Bank Bonds 'AA'

2008-11-08 14:07:03 -

- Fitch Ratings assigns a long-term 'AA' rating and Stable Rating Outlook to existing and potential bank bonds corresponding to the following State of Kansas Department of Transportation (KDOT) adjustable-rate bonds:

--Adjustable tender highway revenue bonds series 2000B subseries B-1 and B-2;

--Adjustable tender highway revenue bonds series 2000C subseries C-1 and C-2;

--Adjustable tender highway revenue refunding bonds series 2002B subseries B-1, B-2, and B-3;

--Adjustable tender highway revenue refunding bonds series 2002C subseries C-1, C-2, and C-3;

--Adjustable tender highway revenue refunding bonds series 2002D;

--Adjustable tender highway revenue bonds series 2004C subseries C-1, C-2, C-3, and C-4;

--Adjustable tender highway revenue bonds series 2008A subseries A-1, A-2, A-3, A-4 and A-5.

In addition, Fitch confirms the long-term 'AA' rating and Stable Rating Outlook on outstanding parity KDOT bonds.

Based on a review of the interest rates, cure periods and amortization schedules specified in the documents governing the bank bonds, it is Fitch's opinion that the incremental risk associated with the bank bonds does not have a material impact on KDOT's long-term credit rating. KDOT's 'AA' rating reflects the broad-based and diverse constitutionally dedicated revenue stream of the state highway fund, which includes revenues from motor fuel taxes and vehicle registration fees, along with the protections afforded by the 3 times (x) additional bonds test as well as the covenant by the state to ensure revenues in the fund cover annual debt service 3x. These provisions, along with the authorized ability to convert bank bonds to fixed-rate bonds, as well as other remedial actions available to KDOT to address the increased interest expense associated with failed remarketings and/or the possible amortization of bank bonds, including the ability to purchase up to $100 million of bank bonds on a rolling basis, reduce expenditures, or phase construction projects, all support the rating.

KDOT has a total of $1.7 billion of bonds outstanding, including 47% fixed-rate bonds and 53% adjustable-rate bonds equal to $906 million. A total of $363.4 million in the adjustable-rate bonds have been tendered and are now bank bonds. KDOT has invested $100 million of their investment portfolio in these bonds. Amortization of bank bonds is required by the earlier of the 90th day following the purchase by the liquidity provider and the last day of the commitment period as defined by the earlier of the scheduled termination of agreement, the date no bonds are outstanding, and the close of business on the conversion date. The state provides self-liquidity for series 2000B and 2000C bonds through the state's pooled money investment board. KDOT has four other liquidity facilities in place covering 2002B, 2002C, 2002D, 2004C and 2008A series of bonds. On Sept. 4, 2008 KDOT converted 2004B bonds to fixed-rate bonds. Pledged revenues remain satisfactory to cover higher interest rates associated with the bank bonds. This, coupled with the operational discretion to ensure a balanced budget and the indenture covenant for 3x coverage of debt service, offset risks associated with accelerated amortization of bank bonds. Coverage of KDOT bonds is a broad 3.9x from fiscal 2007 revenues.

For additional information please refer to Fitch research dated July 30, 2008, available on the Fitch Ratings web at site www.fitchratings.com.

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
Janet Martin, 212-908-0507
Richard J. Raphael, 212-908-0506
Cindy Stoller, 212-908-0526 (Media Relations)
cindy.stoller@fitchratings.com