Fitch Rates Kansas Dept of Transportation's $182MM Revs 'AA'; Outlook Stable.

NEW YORK -- Fitch Ratings assigns an 'AA' rating to $181,695,000 of State of Kansas Department of Transportation (KDOT) highway revenue refunding bonds series 2009A. The bonds are scheduled to sell through negotiation the week of Nov. 16, 2009 and will be due Sept. 1, 2015-2020. These fixed-rate bonds are being issued to refund outstanding variable-rate demand obligations. Fitch also affirms the underlying long-term rating of 'AA' on $1.6 billion of outstanding KDOT revenue bonds. The Rating Outlook is Stable.

The 'AA' rating reflects the broad-based and diverse dedicated revenue stream of the gross revenues in the state highway fund, along with the protections afforded by a 3 times (x) maximum annual debt service (MADS) additional bonds test. The legislature has, and may well continue to, alter the components and/or distribution formulas of the revenues credited to the fund. However, bondholders are insulated from the changes to the extent that the state has covenanted to maintain revenues in the highway fund at least equal to 3x coverage of annual debt service. In addition, certain revenues are constitutionally dedicated to transportation.

Highway revenue bonds have been issued for a Comprehensive Transportation Program (CTP), which has been 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, including highway user revenues, a portion of the state's general 5.3% sales and use tax, and federal aid.

The highway fund currently includes the constitutionally dedicated state transportation revenues, which consist of 66.37% of fuel taxes and motor vehicle registrations and license fees (aggregating $447 million in fiscal 2009). Also pledged is a direct credit, at the increased rate of 0.65% since fiscal 2008, of the state sales and use tax ($268 million in fiscal 2009). Pledged revenue growth has been slowing in recent years, and fiscal 2009 revenues declined from the prior year. Coverage remains strong. Despite another projected decline in fiscal 2010, state source revenues are expected to cover MADS by about 4x times (x); highway user revenues alone are estimated to provide more than 2.5x coverage. Federal reimbursements are only permitted to be included in the calculation of the 3x covenanted requirement for additional issuance when the outstanding pre-1999 bonds mature in 2013. Fiscal 2010 MADS coverage including federal reimbursements is estimated at about 6.5x.

The $13.5 billion 10-year CTP was initiated in 1999 as the successor to the completed comprehensive highway program (CHP). In addition, in March 2006, the Kansas Development Finance Authority sold $210 million of bonds to support the transportation capital program; these bonds are payable from general fund appropriations, subject to legislative approval. The state has expended its authorization under the CTP, which expired in June 2009. Legislation for a new long-range transportation program is expected to be introduced in the 2010 legislative session. The program is expected to focus on maintaining existing highway infrastructure.

Additional information is available at 'www.fitchratings.com'.

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