Kentucky I-Way bonds unaffected despite project delays

Fitch sees no rating impact on the $290 million of bonds issued for the Next Generation Kentucky Information Highway project despite delays resulting from stalled negotiations between the Kentucky Wired Infrastructure Company and telecom providers Windstream and AT&T.

Earlier this month, KWIC reported that its fibre optic installation project was facing delays of up to one year. However, according to Fitch, the delays' impact is mitigated by extensions permitted by the state of Kentucky.

“Total completion of the entire project has been pushed from fall 2018 to 2019 because of significant delays in reaching pole attachment agreements with AT&T and Windstream, who owns majority of the utility poles necessary to construct the network, particularly in central and eastern Kentucky,” KWIC said in a statement on August 1.

Since then, agreement with the two telecoms companies has been reached, accounting for 75 percent of the poles necessary for the project. “Agreements which cover the remaining 25 percent of poles are still in the negotiation phase with utilities, but are expected to be resolved in the near term,” Fitch said.

The project, also known as the KentuckyWired Middle Mile plan, entails building a fibre optic network spanning more than 3,000 miles that will bring high-speed internet to all of Kentucky’s 120 counties. The state awarded the contract to a consortium led by Macquarie Capital in December 2014. The design-build team comprises Overland Contracting, a Black & Veatch company, and Ledcor Group, which will operate and maintain the network for the next 30 years.

The majority of the fibre optic cables – 85 percent – will be attached to telephone poles, while the rest will be installed underground.

The state of Kentucky will invest $30 million in the project – in cash and kind – while the remaining $270.9 million will be provided through private funds.

In addition to expecting that the public partner will extend the deadline, Fitch also cites the project’s sufficient liquidity to meet expenses and debt service obligations in the near term in its decision to maintain its existing BBB+ rating.

“The impacts of the aforementioned delays seem to be adequately mitigated at this time given the expected scheduling extension alongside the project’s available liquidity and security package,” the ratings agency said.

The long-stop date for the project is 31 July 2019. While meeting that date is uncertain at this time, and if unmet constitutes an event of default, Fitch said “the DB contractors, project company and Commonwealth are working together now to avert this 2019 scenario”.

“Fitch expects a revised schedule to maintain about a one-year difference between the new substantial completion date and long-stop date, allowing sufficient scheduling allowance for any other unexpected delays,” the ratings agency added.