Fitch raises Kentucky toll revenue bonds, TIFIA loan to BBB-plus

Fitch Ratings upgraded the Kentucky Public Transportation Infrastructure Authority’s $336 million of first tier toll revenue bonds and $443 million Transportation Infrastructure Finance and Innovation Act loan to BBB-plus from BBB.

“The upgrade is supported by strengthened debt service coverage ratios (DSCRs) due to better than expected recovery from the pandemic,” Fitch said Thursday.

“The rating reflects the project’s proven historical demand profile and important role as a congestion reliever for competing free crossings over the Ohio River between Kentucky and Indiana. Moderately high leverage and an increasing debt service profile have a constraining effect on the overall credit quality.”

Outlooks on the bonds and TIFIA loan are stable at the new rating, Fitch said. Before the upgrade, the outlook was positive.

The Louisville-Southern Indiana Ohio River Bridges system is made up of two electronic tolled crossings of the river that form a loop around Louisville. The system is exposed to competing free alternative crossings on the I-64 bridge and the U.S. 31 Bridge, according to Fitch.

“However, LISORB provides an important role as a congestion reliever, especially in peak hours. Fitch views the current toll rates as moderate compared with other tolled bridges in the area and nationwide. Transactions are mostly comprised of commuters but the roughly 15% from heavy trucks accounts for around 40% of toll revenue,” the rating agency said.

Traffic recovered from the pandemic, growing by 16% year over year in fiscal 2022 and surpassing the fiscal 2019 pre-pandemic traffic count, according to Fitch. Traffic growth moderated to 2% in fiscal 2023.

From July through January, traffic increased by 7%, partially due to diversions from the nearby Sherman Minton bridge, which was closed for repairs during the summer.

“Toll revenue according to cash collected increased year over year by 20% in fiscal 2022 and 11% in fiscal 2023. Inflation-linked toll increases of 2.6% in fiscal 2022 and 8.3% in fiscal 2023 boosted revenue growth,” Fitch said. “KPTIA’s total gross debt service coverage in fiscal 2023 was 2.3 times compared to Fitch’s base case expectation of 1.8 times, reflecting higher than expected revenue.”

Looking ahead, Fitch noted that future capital needs include deck rehabilitation, cable stay repairs and general maintenance repairs on bridges, roadways, and tunnels.

“Budgeted maintenance costs for fiscal 2024 total $5.3 million including $2.3 million for steel remediation and joint repairs on the Kennedy Bridge. KPTIA plans to replace the Kennedy Bridge in 2035 at the earliest and currently estimates the cost at around $233 million,” according to Fitch.

Fitch noted that the project benefited from the flexibility to adjust toll rates in order to generate sufficient revenue, cover all expenses and meet financial covenants.

“The tolling body that sets rates is comprised of members from both states, which could make rate setting in excess of the current tolling policy more politically challenging. Under the current tolling policy, tolls increase annually by the greater of inflation or 2.5%,” Fitch said.

Fitch said a factor that could lead to a negative rating action include any decline in financial performance resulting in debt service coverage below 1.5 times on a sustained basis.

Factors that could lead to a rating upgrade include maintenance of total 10-year average rating case DSCR above 1.8 times and a year-five leverage at or below 7 times, Fitch said.

The project is one of several that Gov. Any Beshear has made a priority during his administration.

Both tKentucky and Indiana have lobbied for federal funds to cover half the cost of a bistate Ohio River bridge that would connect the Interstate 69 national trade corridor.

Others are the $3.6 billion Brent Spence Bridge Corridor Project linking northern Kentucky and Cincinnati, Ohio, and the $400 million expansion and extension of the Mountain Parkway through eastern Kentucky.