CLEVELAND-CUYAHOGA COUNTY PORT AUTHORITY Cultural Facility Revenue and Refunding Bonds, Series 2018 (Playhouse Square Foundation Project)
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SUPPLEMENT DATED JUNE 5, 2018 TO PRELIMINARY OFFICIAL STATEMENT DATED MAY 21, 2018 $80,000,000* CLEVELAND-CUYAHOGA COUNTY PORT AUTHORITY Cultural Facility Revenue and Refunding Bonds, Series 2018 (Playhouse Square Foundation Project) This Supplement supplements the Preliminary Official Statement, dated May 21, 2018, relating to the captioned bonds. Capitalized words and terms not otherwise defined in this Supplement have the meaning given to them in the Preliminary Official Statement. The information contained in this Supplement should be read in conjunction with the information contained in the Preliminary Official Statement. The Preliminary Official Statement is supplemented and amended as follows: 1. The paragraph under the caption SECURITY AND SOURCES OF PAYMENT—Debt Service Coverage Ratio; Liquidity Covenant on page 9 is deleted and replaced with the following: The Loan Agreement contains covenants of the Borrower with respect to debt service coverage, liquidity, insurance, litigation, taxes and certain other matters. Specifically, the Borrower has covenanted to set rates and charges for its facilities, services and products so that the Long-Term Debt Service Coverage Ratio, calculated at the end of each fiscal year, will not be less than 1.20 for such prior fiscal year. If the Borrower fails to meet the Long-Term Debt Service Coverage Ratio, it must retain a consultant and follow the consultant’s recommendations to the extent permitted by law and consistent with its status as a tax-exempt organization. If the Borrower follows the consultant’s recommendations, the Long-Term Debt Service Coverage Ratio requirement will be deemed to have been met so long as the ratio is greater than 1.00. In addition, the Borrower has covenanted to maintain no less than 50 Days Cash on Hand as of each June 30 and December 31, measured on a trailing 12-month period ending on each calculation date. So long as any of the Bonds remains outstanding, the Borrower will be required to comply with the terms of the provisions of the Loan Agreement. See APPENDIX C under THE AGREEMENT – Debt Service Coverage Ratio and – Liquidity Covenant. 2. On page A-20, the following is inserted at the end of the subcaption Key Financial Ratios—Debt Service Coverage Ratio: The following table sets forth the historical and pro forma debt service coverage ratio of the Foundation: * Preliminary, subject to change. 1 Historical and Pro Forma Debt Service Coverage Audited Financial Statements Pro Forma FYE June 30th: 2015 2016 2017 2018 2019 2020 2021 2022 Unrestricted Revenues 1 $ 76,740,443 $ 81,346,148 91,443,585$ $ 86,539,841 $ 91,147,368 $ 94,794,005 $ 98,609,001 $ 102,600,357 Operating Expenses 1 74,482,430 79,474,769 84,881,921 71,944,993 75,029,360 78,425,217 81,980,200 85,701,943 Less: Depreciation and Amortization Expense (14,488,472) (14,618,168) (14,348,378) - - - - - Interest Expense (4,222,840) (3,767,053) (3,872,949) - - - - - Adjusted Operating Expenses 55,771,118 61,089,548 66,660,594 71,944,993 75,029,360 78,425,217 81,980,200 85,701,943 Income Available for Debt Service $ 20,969,325 $ 20,256,600 24,782,991$ $ 14,594,848 $ 16,118,008 $ 16,368,788 $ 16,628,801 $ 16,898,414 Existing Facilities Debt Service 2,3 $ 7,818,149 7,110,940$ 5,812,793$ 3,415,447$ 385,569$ $ 386,382 387,207$ $ 378,864 Proposed Debt Service for 2018 Bonds - - - - 3,903,726 4,049,975 5,195,600 5,195,350 Debt Service for Existing Facilities and Series 2018 Bonds $ 7,818,149 7,110,940$ 5,812,793$ 3,415,447$ 4,289,295$ $ 4,436,357 5,582,807$ $ 5,574,214 Coverage for Existing Facilities and Series 2018 Bonds 2.68x 2.85x 4.26x 4.27x 3.76x 3.69x 2.98x 3.03x Estimated Debt Service for Bank Loan 4,5 $ - -$ -$ -$ -$ $ 1,393,209 3,808,410$ $ 3,954,167 Debt Service for Existing Facilities, Series 2018 Bonds, and Bank Loan$ 7,818,149 7,110,940$ 5,812,793$ 3,415,447$ 4,289,295$ $ 5,829,566 9,391,217$ $ 9,528,381 Coverage for Existing Facilities, Series 2018 Bonds, and Bank Loan 2.68x 2.85x 4.26x 4.27x 3.76x 2.81x 1.77x 1.77x (1) Foundation projections for Fiscal Years 2018 - 2022. (2) Historical (Fiscal Years 2013 - 2017) and pro forma (Fiscal Year 2018) Debt Service "Existing Facilities Debt Service" based on "Required Principal Payments" from the table above. (3) Pro forma "Existing Facilities Debt Service" includes PDDC, Ohio Energy, Fairfield Loans, Wyndham (2018 only), and three City of Cleveland forgivable loans desribed in Appendix B-1. (4) Interest amount paid during initial term of the Bank Loan is based upon a draw schedule provided by the development team. It is anticipated that there will be no draws during first 12 months. (5) Foundation guarantee is eliminated upon takeout of the Bank Loan with permanent financing (i.e. after construction and stabilization). 2 3. The definition of “Capital Addition” on page C-2 is deleted in its entirety. 4. The following definition is added to page C-5: “Long-Term Indebtedness” means all obligations for borrowed money incurred or assumed by the Borrower, for an original term, or renewable at the option of the Borrower for a period from the date originally incurred, longer than one year. 5. The first paragraph under Debt Service Coverage Ratio on page C-19 is deleted and replaced with the following: The Borrower covenants to set rates and charges for their facilities, services and products such that the Long-Term Debt Service Coverage Ratio, calculated at the end of each Fiscal Year, will not be less than 1.20 for such prior Fiscal Year. 6. In all other respects, the Preliminary Official Statement is unchanged. This Supplement, the Appendices, and the front portion of the Preliminary Official Statement together constitute the entire Preliminary Official Statement. 3 PRELIMINARY OFFICIAL STATEMENT DATED MAY 21, 2018 NEW ISSUE—BOOK-ENTRY ONLY RATINGS: Standard & Poor’s “BB+” See RATING In the opinion of Squire Patton Boggs (US) LLP, Bond Counsel, under existing law (i) assuming continuing compliance with certain covenants and the accuracy of certain representations, interest on the Bonds is excluded from gross income for federal income tax purposes, and is not an item of tax preference for purposes of the federal alternative minimum tax; however, interest on the Bonds is included in the calculation of a corporation’s adjusted current earnings for purposes of, and thus may be subject to, the corporate alternative minimum tax (applicable only to taxable years beginning before January 1, 2018), and (ii) interest on, and any profit made on the sale, exchange or other disposition of, the Bonds are exempt from all Ohio state and local taxation, except the estate tax, the domestic insurance company tax, the dealers in intangibles tax, the tax levied on the basis of the total equity capital of financial institutions, and the net worth base of the corporate franchise tax. Interest on the Bonds may be subject to certain federal taxes imposed only on certain corporations. For a more complete discussion of the tax aspects, see TAX MATTERS. $80,000,000* CLEVELAND-CUYAHOGA COUNTY PORT AUTHORITY Cultural Facility Revenue and Refunding Bonds, Series 2018 (Playhouse Square Foundation Project) Dated: Date of Delivery Due: As Shown on the Inside Cover The $80,000,000* Cleveland-Cuyahoga County Port Authority Cultural Facility Revenue and Refunding Bonds, Series 2018 (Playhouse Square Foundation Project) (the “Bonds”), when, as and if issued, will be special obligations of the Cleveland-Cuyahoga County Port Authority (the “Port Authority”) issued pursuant to a Trust Indenture dated as of June 1, 2018 (the “Trust Agreement”), between the Port Authority and U.S. Bank National Association as trustee (the “Trustee”). The Bonds are issued for the purposes of (a) paying a portion of the costs of the 2018 Project described under THE PROJECT AND PLAN OF FINANCE, (b) currently refunding the Port Authority’s Cultural Facility Revenue and Refunding Bonds, Series 2014 (Playhouse Square Foundation Project) (the “Refunded 2014 Bonds”), (c) prepaying a portion of a loan entered into by the Borrower and its affiliate in 2016 to finance renovations to the Idea Center Building, and (d) paying certain issuance costs in connection with the issuance of the Bonds. The Bonds will be payable from the Revenues pledged by the Port Authority under the Trust Agreement, which include the Loan Payments required to be made by Playhouse Square Foundation, an Ohio nonprofit corporation (the “Borrower”), from all revenues and sources available to the Borrower, under a Loan Agreement between the Port Authority and the Borrower. The Bonds are issuable as registered bonds without coupons and initially will be registered only in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”), which will act as securities depository for the Bonds. The Bonds will be issuable only under the book-entry system maintained by DTC through brokers and dealers who are, or act through, DTC Participants or Indirect Participants, and purchasers of the Bonds will not receive physical delivery of bond certificates. See THE BONDS —Book-Entry-Only System and APPENDIX E. Principal of and premium, if any, on the Bonds will be payable to the registered owner upon presentation and surrender at the designated corporate trust office of the Trustee in Cleveland, Ohio, and interest will be transmitted by the Trustee on each Interest Payment Date to the registered owner as of the record date preceding that interest payment date, all as more fully described herein.