Kentucky Bonds (Kentucky Municipal Bonds)

By: EconomyWatch Content   Date: 6 November 2009

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The state of Kentucky uses municipal bonds to generate a steady income stream that is not subject to federal taxation. The statefollows a self laid rule based on which it does not impose taxes on income generated through the purchase of Kentucky bonds. However, income generated from bonds issued by other states to the residents of Kentucky is not exempt from taxes. The purpose of this rule is to enhance the demand for local bonds. This lowers the state’s public borrowing costs.

Similar to bonds issued by states offering in-state tax advantages, the yields on Kentucky bonds are ten to 25 basis points lower than those without tax advantages.

Kentucky Bonds: The Profile

Some of the key Kentucky bonds and their profile are:

  • Kentucky Pollution Control Revenue Refunding Bonds: These $83.3 million bonds were issued on behalf of Big Rivers Electric Corporation. The proceeds from these bonds would be used to refund the outstanding $83.3 million in aggregate principal amount of Pollution Control Refunding Revenue Bonds, Series 2001A. These bonds were assigned the (P)Baa1 senior secured rating by Moody's Investors Service in July 2009. The rating reflected potential financial benefits to Big Rivers from the initiatives taken to unwind a lease and other transactions with E.ON US LLC and two affiliates.

  • Revenue bonds, Project No 96: These roughly $393.235 million bonds were issued by Kentucky State Property and Buildings Commission (SPBC) in October 2009. The bonds were assigned the 'AA-' rating by Fitch Ratings in October 2009. Additionally, the ratings agency affirmed the 'AA-' rating on the $6.3 billion of appropriation bonds previously issued by Kentucky agencies. The ratings were based on Kentucky’s favorable revenue performance especially since the economic downturn of 2008. The proceeds from these bonds were slated to finance various capital projects and are due on November 1, 2010-2029.

  • Nicholasville, Kentucky general obligation (GO) bonds: Standard & Poor's Ratings Services raised its underlying rating (SPUR) on these bonds from 'A+' to 'AA-', while maintaining the ratings outlook at Stable. The ratings reflected the state’s robust financial operations and economic profile that continued to benefit from access to employment in the Lexington area.


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