Fitch Rates Kansas DOT $250MM Hwy Rev Bonds 'AA'.

Business Editors/High-Tech Writers

NEW YORK--(BUSINESS WIRE)--May 27, 2004

Fitch Ratings assigns a 'AA' rating to the Kansas Department of Transportation's (KDOT) $250 million highway revenue bonds series 2004A, expected by negotiation June 8 through a syndicate led by Goldman Sachs & Co. The bonds are due March 1, 2018-2023, with details to be determined. The 'AA' rating assigned to the currently $1.3 billion outstanding highway revenue bonds is affirmed.

Highway revenue bonds are issued for a comprehensive transportation program that is the state's principal capital focus. They are payable on parity, as special obligations of the state, secured by and payable from a gross pledge of all revenues in the state highway fund which has a broad-based and diverse revenue stream including highway user revenues, a portion of the state's general sales tax and federal aid. The legislature has, and may well continue to, alter the components and/or distribution formulas of the revenues credited to the fund. Bondholders, however, are insulated from the changes to the extent that the state has covenanted to maintain revenues in the highway fund at least equal to 3 times (x) coverage of annual debt service. Currently, coverage is an ample 4x.

The fund currently includes the constitutionally dedicated state transportation revenues which consist of 66.37% of fuel taxes, a direct credit equal to 0.25% of the 5.3% state sales and use tax, and motor vehicle registrations and license fees. The fund previously received a general fund transfer of a percentage of the retailers' sales tax, but transfers were suspended for fiscal years 2003 and 2004 and the enabling statute has been repealed due to pressures on the general fund. Adjustments included an unscheduled 2 cent increase in the motor fuel tax, the enlargement of bonding authority and refundings. The highway fund has continued to receive 0.25% allocation of the state 5.3% sales tax, which is now scheduled to rise beginning in fiscal 2007. The legislature also authorized up to $210 million of bonds, to support the capital program, for issuance by the Kansas Development Finance Authority. These bonds would be payable from general fund appropriations, subject to legislative approval.

Following this sale, there are $347 million KDOT bonds remaining authorized for the 10-year comprehensive transportation program (CTP) initiated in 1999 as the successor to the completed comprehensive highway program (CHP). The bonds now offered continue the CTP with amortization delayed until 2018 to enlarge funds available for the program. In November 2003 three series of refunding bonds were sold to restructure KDOT's debt to provide near-term cash flow savings, thus allowing continued debt issuance earlier than previously expected as well as affording some financial flexibility.

Despite the prior reductions and present elimination of the sales tax transfer, coverage levels remain good. State source revenues received in fiscal 2003 cover estimated maximum annual debt service after the current sale by 4.0x; highway user revenues alone provided 3.1x coverage. Levels slightly improve using fiscal 2004 estimated revenues, to 4.2x and 3.3x, respectively. If federal aid is included, coverage by fiscal 2003 revenues rises to 7.0x. Including the authorized $347 million bonds, coverage of projected maximum debt service by fiscal 2003's state revenue sources is 3.3x and enlarges to 5.1x with permitted inclusion of federal reimbursements although they may not be included in the calculation of the required 3x covenanted requirement for additional issuance until the outstanding pre-1999 bonds mature in 2015.