Sorry about that last inadvertently sent and hardly chewed e-mail . . . here's the full one:
David Brauer earlier wrote: Fundamentally, though, the Historic Theater Group deal seems more certain to get the theater debt & capital costs off our backs, which is why (for purposes of Devil's advocacy), I favor that bid in this debate. Me again: Still playing an unconvinced angle, I'll predictably say I'm not so sure about this. To me, it seems the major deal on this issue is whose guarantee matters most--Clear Channel or the Ordway-Alliance? Here's what I see: Clear Channel guarantees the repayment of the new debt service, which it estimates at $1.6 million year for 30 years. Ultimately, the 'lease' payment to the city is the actual amount of the restructured debt service. So, no new net inflows of cash to the city, just a guarantee that debt service will be paid through lease payments. I get that part. The only effective net inflow of cash to the city is what it saves in capital costs that HTG-Clear Channel assumes, an amount that HTG appears to estimate at $200,000 year, adjusted over the years for inflation. But the Alliance-Ordway also guarantees repayment of the debt service through ticket sales, and also structures finances such that the restoration fee (the surcharge on tickets that now pay the debt service) is collected and remitted to the city, with any excess required to be placed in reserve to meet future debt service. This is a nifty part of the deal: making the city place excess restoration fees in reserve appears to take care of escalating factors in the debt service later, and Alliance-Ordway, in its proposal, guarantees ticket sales to meet annual debt service through restoration fees. A shakier guarantee than Clear Channel's? Admittedly, it may be, but a lot depends on the details. [In the HTG deal, HTG appears to keep all restoration fees, raising an issue for me as to why continue charging theatergoers for the city's debt service when ostensibly HTG/Clear Channel has restructured the debt to allow them to make this deal, thereby making the debt taxable, and then guaranteed the debt through annual 'lease' payments. Does the restoration fee--originally meant to repay city debt--simply become a mandated revenue subsidy for HTG/Clear Channel to meet its obligations under this deal?] The Alliance-Ordway, however, provides $500,000 in rent each year to the City, a positive net inflow of cash, plus pays all operating expenses for the buildings. With escalations, the Ordway-Alliance pays some $21 million in rent over the course of the deal, and the city holds on to the buildings (this is the Alliance's 'rent only' scenario, not the purchase option scenario). Though the city is responsible for capital costs, let's assume--using HTG's figures--that capital costs are about $200,000 annually. That's still a $300,000 net cash inflow on average from rent, and more as Alliance rent is escalated. I certainly understand the vagaries of capital costs, but remember that all three theaters have been completely restored in the last ten years. So, why does it appear we passing up $300,000+ of potential revenue each year--plus selling three valuable assets-- by rejecting the Ordway-Alliance approach? Gregory Luce St. Paul A legal question: if there is a restriction in the deed on the State Theatre for its sale to any entity other than a nonprofit, are there worries that this is effectively a sale to the -----Original Message----- From: [EMAIL PROTECTED] [mailto:[EMAIL PROTECTED] On Behalf Of David Brauer Sent: Sunday, November 21, 2004 8:31 AM To: [EMAIL PROTECTED] Subject: RE: [Mpls] Council Votes to Negotiate with Current Theater Managers Greg Luce asks some great, non-shame-based questions about the theater deal: > 1. How does the conversion of the nontaxable bond debt to taxable > bond debt > help the City's borrowing capacity, as the City ultimately remains on > the hook, though with a guarantee from Clear Channel? Is the CCE > guarantee that > powerful? This is a key question. As many may remember from the Brookfield/Gaviidae deal/default, you can get a corporate payback promise but it isn't necessarily gold. The Brookfield deal is instructive. The part that was defaulted upon was backed by a very poor guarantee - a secondary mortgage interest that a Brookfield subsidiary could walk away from. However, another part of Gaviidae is backed by a central Brookfield asset - and no default. The trick for city negotiators is to get a strong guarantee. Nothing is ironclad, and the public should vet the details. But all the Council did on Friday was agree to negotiate exclusively with HST/Clear Channel for 120 days. We - and a Council that is far more fiscally responsible than its predecessors - will be able to judge the fine print. > 2. Does anyone have accurate debt service figures for the City once > the bonds are converted? Here are the sources: HST/Clear Channel financing proposal: http://www.ci.minneapolis.mn.us/cped/docs/response_htg.pdf (see pages 28-33) The current debt-service schedule: http://www.ci.minneapolis.mn.us/cped/docs/theatres_exhibit5.pdf It looks like HST/Clear Channel would pay a lease of $1.6 million, equal to the interest and principal on the new bonds. (A new 30-year term would start with the conversion from tax-free to taxable.) Currently, the city is treading water on its theater debt. It pays $600,000 a year interest but no principal. As in many public and private deals, the principal repayment is severely backloaded. The first $125,000 principal payment is in 2010 - year 9 of the 30-year schedule We would pay $2.5 million in principal in 2031, the last year of the deal. > 3. Are the $1.6 million estimated lease payments to the City for 30 > years considered the ultimate 'purchase' price of the three theaters. Yes. > Remarkably, I understand that the City has no > appraisals for the buildings but is going forward with this as an > ultimate sale. It's probably tough to appraise these properties since there are no comparable sales. It comes down to what someone will pay. No one has made an offer until now. Could someone pay more? Perhaps, but unlikely. Remember, too, HST/Clear Channel will pay building maintenance costs the city (owner) is currently on the hook for. > 4. HTG/HTT/Clear Channel don't provide a presumed average ticket price, > while the Ordway/Alliance assumes an average of $30.75 for its four venues. > Any clue what HTG must charge for tickets to make this deal work? No - though I think price and attendance projects are easily puffed and mostly speculative. Despite the monopoly factors in this debate, there is lots of competition for the entertainment dollar, and those market forces will constrain whomever manages the theaters. I'd love to see others chime in to answer Greg's questions - especially any public servants who have studied the deal. The one way a devil's advocate can sleep with himself is if he helps create a climate where more facts emerge for informed public discussion. David Brauer Kingfield REMINDERS: 1. Think a member has violated the rules? Email the list manager at [EMAIL PROTECTED] before continuing it on the list. 2. Don't feed the troll! Ignore obvious flame-bait. For state and national discussions see: http://e-democracy.org/discuss.html For external forums, see: http://e-democracy.org/mninteract ________________________________ Minneapolis Issues Forum - A City-focused Civic Discussion - Mn E-Democracy Post messages to: mailto:[EMAIL PROTECTED] Subscribe, Un-subscribe, etc. at: http://e-democracy.org/mpls REMINDERS: 1. Think a member has violated the rules? Email the list manager at [EMAIL PROTECTED] before continuing it on the list. 2. Don't feed the troll! Ignore obvious flame-bait. For state and national discussions see: http://e-democracy.org/discuss.html For external forums, see: http://e-democracy.org/mninteract ________________________________ Minneapolis Issues Forum - A City-focused Civic Discussion - Mn E-Democracy Post messages to: mailto:[EMAIL PROTECTED] Subscribe, Un-subscribe, etc. at: http://e-democracy.org/mpls
