CHICAGO -- The private, nonprofit developer of a sports complex in Cleveland, Ohio, plans to ask Cuyahoga County to issue $45 million of bonds to relieve cash-flow pressures associated with the construction of the facility.
Timothy Offtermatt, chief financial officer of the Gateway Economic Development Corp., said the agency will request a bridge loan from the county to cover current cash shortfalls and projected cost overruns on the project.
The county will be asked to issue $45 million of taxable bonds by the end of the year to give Gateway enough money to keep construction of the baseball stadium and basketball arena on schedule, Offtermatt said. By next year, Gateway should have received sufficient revenues from various sources to pay off the loan from the county, he said
Danny R. Williams, Cuyahoga County administrator, said yesterday that Gateway's bonding plan has not been officially presented to the county commission. Williams also said that after preliminary discussions with Gateway officials, there is no consensus among commissioners that issuing bonds is the correct approach.
County commissioners did not return phone calls.
The request for the bond issue will mark the second time Gateway has asked the county to issue debt for the project, which was originally financed with $146.7 million of tax-exempt revenue bonds sold in December 1990. The bond issue was one of the last tax-exempt issues sold for a sports facility under transition rules granted by the Tax Reform Act of 1986. Proceeds from the issue are being used to build a stadium for the Cleveland Indians baseball team.
In late 1991, Gateway asked both Cuyahoga County and the city of Cleveland to issue more debt to help complete an arena for the Cleveland Cavaliers basketball team and to build parking garages for the complex.
The county issued $75 million of taxable bonds for the arena in September 1992, and Cleveland issued $71 million of tax-exempt bonds for three garages for Gateway and the city in November 1992.
Offtermatt said Gateway plans to pay back the county for the $45 million bond issue by tapping expected revenues next year to retire an amount of variable-rate debt that was included in the county's 1992 $75 million issue for Gateway. The county should receive about $30 million in revenues next year from a variety of sources, Offtermatt said. In addition, if Gateway is successful in selling naming rights to the complex, the county could receive another $20 million, he said.
Some of the anticipated revenues would come from Ohio's capital budget, which already has committed $15 million to the project and is expected to commit another $10 million next year, Offtermatt said.
Another $3 million to $4.5 million would come from a conversion and remarketing of $31 million of the original $146.7 million of bonds Gateway sold for the stadium. The variable-rate bonds, secured by a letter of credit from a group of Ohio banks, are scheduled to be sold as 20-year fixed-rate debt in a deal headed by McDonald & Co. Securities Inc. next month, Offtermatt said.
Paul Komlosi, a senior vice president at McDonald, said the savings would come from freeing up money in the debt service reserve and in another fund needed for the letter of credit, which would not be used for the remarketing. The issue will probably be nonrated due to the "uniqueness" of the revenue stream securing the bonds, Komlosi said. Rating agencies may find it difficult to feel comfortable about those revenues, which come from premium and club seating sales, said.
The need to complete the $31 million remarketing issue soon and the ability to take advantage of current low interest rates are also reasons why the issue will probably be sold as nonrated, Komlosi said.
Revenues are also expected from county-wide tax revenues on liquor and cigarettes that Gateway can use up until April 1994 for construction, according to Offtermatt. After that time, the revenues are pledged to bondholders of the $115 million of 1990 stadium bonds sold by Gateway that were not secured by a letter of credit. Another $8 million, to cover arena costs, is expected to be loaned to Gateway from a local business group, Offtermatt said.
In the meantime, Gateway has also taken out a $20 million loan from local banks and closed last week on $5.8 million of nonrated taxable notes that were bought by A.G. Edwards & Sons, Offtermatt said.
If the complex is not completed in time for next year's baseball and basketball seasons, Offtermatt said that Gateway would face a $10 million penalty levied by the Cavaliers and would be subject to a lawsuit for damages by the Indians.