Fitch Rates Kansas DOT $150MM Highway Rev Bonds `AA'
19 October 2000
Fitch Rates Kansas DOT $150MM Highway Rev Bonds `AA'
NEW YORK--Oct. 19, 2000--The Kansas Department of Transportation's $150,000,000 highway revenue bonds, series 2000A, are rated `AA' by Fitch. The bonds are expected to be offered Oct. 31 through negotiation with a syndicate managed by Salomon Smith Barney. The bonds will be due Sept. 1, 2008-2016; optional call information is yet to be determined. The `AA' rating assigned to the $1.1 billion outstanding highway revenue bonds is affirmed.This is the second installment of $995 million bonds authorized for a broadened 10-year comprehensive transportation program (CTP) initiated in 1999 as the successor to the completed comprehensive highway program (CHP). Bonds of both programs are 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 department's general operating fund, which has a broad-based and diverse revenue stream. As at the inception of the prior ten-year CHP, the legislature also enacted a phase-in of motor fuel tax increases and distributions to the fund and broadened the sales tax transfer share in future years in support of the CTP program. The fund currently includes the constitutionally dedicated state transportation revenues (59.55% of fuel taxes, increasing on a phased-in basis to 63.35% in fiscal 2003, in addition to a 4-cent increase in the tax itself), a direct credit of 0.25 cents of the 4.25% portion of the 4.90% state sales and use tax, a general fund transfer of 7.628% of the retailers' sales tax (increasing to 12% by fiscal 2005 on a phased-in basis), and motor vehicle registrations and license fees. The legislature has in the past, and may continue to, alter the components and/or distribution formulas of the revenues credited to the fund. These actions include the capping of the sales tax transfers since 1992 to levels below which would have been generated under the formula, thus muting coverage levels. However, it has covenanted to maintain revenues in the highway fund at least equal to 3.0 times (x) coverage of annual debt service.
Coverage levels are wide, with projected maximum debt service on the outstanding $773.2 million bonds issued for the prior CHP, and on this full $995 million authorization (estimated at about $155 million) covered 4.1x by unaudited 1999-2000 state-generated revenues. Coverage enlarges to 5.6x with permitted inclusion of federal reimbursements although they may not be included in calculation of the required 3.0x covenanted requirement for additional issuance until the outstanding CHP bonds mature in 2015. Following this sale, some $520 million bonds remain unissued, with $200 million adjustable rate bonds expected to be sold before the end of 2000. Coverage levels will also improve to fiscal 2005's projected 5x by state generated revenues and 6.8x including federal, by the approved, phased-in increases in the rate and allocation of fuel taxes, and sales tax transfers, when fully implemented. These coverage levels, however, presume no legislative adjustments or reductions. The high quality rating assigned to these highway revenue bonds reflects the large 3x legal coverage requirement, the success of the prior 10-year CHP program within 2% of estimates, the strong current coverage levels and the breadth of the securing revenues accruing to the state highway fund.
Fitch is an international rating agency that provides global capital market investors with the highest quality ratings and research. Dual headquartered in New York and London with a major office in Chicago, Fitch rates entities in 75 countries and has some 1,100 employees in more than 40 local offices worldwide. The agency, which is a combination of Fitch IBCA and Duff & Phelps Credit Rating Co., provides ratings for Financial Institutions, Insurance, Corporates, Structured Finance, Sovereigns and Public Finance markets worldwide.