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Fitch Rates Kentucky ALCo Bank Bonds 'AA-'; Outlook Negative
NEW YORK-(Business Wire)-October 3, 2008 - Fitch Ratings has assigned a long-term underlying rating of 'AA-' to bank bonds corresponding to variable-rate demand obligations (VRDO) issued by the Kentucky Asset/Liability Commission (ALCo), under its 2005 general fund second series, consisting of series A-1 and A-2, and its 2007 road fund first series A note programs. Fitch has also affirmed the 'AA-' rating on the $5.0 billion of appropriation bonds previously issued by Kentucky agencies, including ALCo. The Rating Outlook is Negative.
The commonwealth of Kentucky's VRDOs represent a minimal portion of its overall debt profile and less than $10 million is currently held as bank bonds. Further, the commonwealth's interest rate and term-out risk is low. Kentucky's long-term credit rating strongly implies favorable access to long-term capital when debt markets stabilize.
The Commonwealth of Kentucky's debt is primarily in the form of lease rental bonds, requiring appropriation. The commonwealth's 'AA-' lease appropriation rating on most state appropriation bonds recognizes the well-established mechanism for lease financing, highlighted by automatically renewable leases, and broader credit characteristics. The Negative Outlook reflects plans to continue to deplete fund balances and virtually drain the budget reserve trust in the current biennium. Further, Fitch remains concerned about the weakened pension funding levels and the commonwealth's rising debt position as an additional $1.65 billion in debt has been authorized for the biennium.
For more on Kentucky's general credit, see the Fitch press release dated Oct. 2, 2008, 'Fitch Rates Kentucky State Property & Buildings $325MM Project 90 Revs 'AA-'; Outlook Negative', available on the Fitch Ratings website at www.fitchratings.com.
Note: Fitch issued an exposure draft on July 31 proposing a recalibration of tax-supported and water/sewer revenue bond ratings which, if adopted, may result in an upward revision of this rating (see Fitch research 'Exposure Draft: Reassessment of the Municipal Ratings Framework').
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.
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