Fitch Affs Cleveland, OH Rock & Roll Museum Bds 'BBB'.

Business Editors

NEW YORK--(BUSINESS WIRE)--Oct. 2, 2003

Fitch Ratings today affirms the 'BBB' rating for Cleveland-Cuyahoga County Port Authority's outstanding $9.475 million subordinate revenue bonds, series 1997. The Rating Outlook is Stable. The bonds are secured by a subordinate lien on a portion of Cuyahoga County's hotel tax receipts, admission surcharge to Cleveland's Rock and Roll Hall of Fame Museum (Museum), corporate sponsorship revenues at the museum and interest earnings on the bonds' reserve funds.

Final maturity is in 2009. The bonds are subordinate to $16.725 million of CCCPA senior revenue bonds that have a first lien on the County's hotel tax. Senior bond sinking fund principal payments begin in 2006, and final maturity for these is in 2015. McDonald & Co. Securities Inc. was the original underwriter of the series 1997 subordinate bonds.

The subordinate revenue bonds were sold in 1997 and refinanced portions of the original financing for the Rock and Roll Hall of Fame Museum that opened in Cleveland in September 1995. CCCPA owns the land and building, and leases it to the Museum, a not-for-profit organization. Under the lease, the museum is required to pay basic rent to CCCPA, which consists of revenue from a portion (1.5%) of the countywide hotel tax, a 3% surcharge on museum admissions, and any revenue received from sponsorship agreements. In fiscal 2002, the hotel tax accounted for 88% of the museum's pledged revenues. From 1998 until 2006, the senior bond debt service requirement is $903,000 annually, and the subordinate bonds debt service requirement is $2.2 million annually. Senior debt service increases to $2.2 million annually from 2006 through 2015, while subordinate debt service decreases to roughly $1.1 million annually from 2006-2009.

Debt service coverage on the subordinate bonds from 1998 until 2002 (FY end 12/31) has been 1.45x, 1.44x, 1.49x, 1.40x, and 1.36x, respectively. Total countywide bed tax collected since 1998 is $3.72 million, $3.95 million, $4.12 million, $3.87 million, and $3.78 million, respectively. Debt service reserve fund earnings contribute roughly $284,000 annually, but corporate sponsorships have been zero since 2001. From 1998 to 2000, corporate sponsorships contributed $322,510, $66,479 and $45,465, respectively. The Museum has contributed the required $224,000 ticket surcharge to bondholders annually.

Cash reserves for the senior bonds constitute $1.68 million debt service reserve fund, $1 million senior surplus reserve fund and $3.36 million in the surplus general fund. Subordinate bond cash reserves constitute $1.8 million in the debt service reserve fund and $3.4 million in the subordinate surplus reserve fund (which is fully funded). If the required $224,000 ticket surcharge has shortfalls due to a decline in admission receipts, then the Museum is obligated to fund the balance from its annual budget. This happened in 2000, 2001 and 2002, when the Museum experienced admission surcharge shortfalls of $82,328, $78,306, and $62,188, respectively.

The museum has complete discretion over the admission fee, and the surcharge must be maintained at 3% or higher. However, the Museum's pledged revenues created excess cash after senior and subordinate debt service of $1.14 million in 2002, and has averaged roughly $1.2 million in excess revenues since 1998. In 2002, the Museum saw operating revenues of $16.59 million and operating expenses of $14.6 million.

Fitch considers the short final maturity of 2009, decreasing subordinate debt service obligations and cash reserves to provide adequate security for this 'BBB' rating. Additionally, the dominant portion of pledged revenues, the countywide hotel tax, has a relatively inherent stability for this populated and business-center Ohio county.