Fitch: Kentucky P3s at risk

Fitch Ratings has warned a failure by Kentucky to meet its obligations under P3 contracts will create uncertainty for the market.

The ratings agency believes a budget dispute regarding appropriations and additional bonding authority for the Kentucky Wired P3 project puts the ratings of related project debt and the commonwealth itself at risk, and also raises questions about the viability of P3 projects in Kentucky.

“A failure by Kentucky to meet its obligations under the P3 contracts will also create some uncertainty among market participants, including contractors, infrastructure investors and lenders regarding the vitality of P3 finance for infrastructure more generally,” Fitch said.

Last week Robert Morphonios, chief executive of the Macquarie-led Kentucky Wired Operations partner, told local press that if payments stop the project would end and taxpayers would be obligated to pay off a loan of hundreds of millions of dollars.

The concerns surround Budget bill (HB 200), passed by the legislature on April 2, which classified essentially all of the governor's proposed appropriation for availability payments for the Kentucky Wired P3 as necessary government expenses (NGE) to be paid upon direction from the governor.

Governor Matt Bevin said he intended to veto both HB 200, and the related tax bill (HB 366), highlighting Kentucky Wired as a project the commonwealth is fully committed to. He criticized the legislature for designating the requested funding as NGEs, rather than providing a line item appropriation.

“Rejection of the governor's requests by the legislature could indicate that the commonwealth's own fiscal challenges in a difficult budgetary environment take political precedence over P3 project obligations,” Fitch warned.

As reported earlier this week, Kentucky policymakers remain keen on the P3 model.