Kentucky turnpike authority approves $128 million bonds to refund BABs

The Turnpike Authority of Kentucky approved the sale of $128 million of revenue bonds, with the proceeds to be used to refund the authority's Series 2010B Build America Bonds.

TAK Treasurer Steve Starkweather said he expects the authority to price the bonds June 6 with an all-in true interest cost of 3.216%.

They are to be sold through negotiation with JPMorgan as the underwriter. Dinsmore and Shohl, LLP is the bond counsel.

The BABs being refunded had a $187.6 million par value, with a final maturity of July 2030.

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The U.S. government started reducing its subsidy for BABs — about three years after these bonds were sold — due to sequestration requirements in the Budget Control Act of 2011, Starkweather said.

The subsidy reduction resulted in $2.3 million of costs for the authority, he said.

A court found the sequestration caused a material change impacting the issuer, which spurred an extraordinary redemption provision. Other issuers have used this provision to redeem BABs in recent months, although investors have challenged the legality.

By refunding the BABs, the authority will get a net present value savings of $570,000, eliminate administrative burdens associated with the BABs, and avoid the risk that the U.S. government will eliminate the subsidy in 2025, Kentucky State Budget Director John Hicks said.

In April Fitch Ratings upgraded the Kentucky Public Transportation Infrastructure Authority's $336 million of first tier toll revenue bonds to BBB-plus from BBB.

The Kentucky State Property and Building Commission refunded its BABs this spring.