NEW ISSUE/BOOK-ENTRY RATING: Fitch: A- See “Rating” herein In the opinion of Peck, Shaffer & Williams, a Division of Dinsmore & Shohl LLP, Bond Counsel, under existing laws, regulations, rulings and court decisions, (i) assuming compliance with certain covenants, interest on the Series 2014 Bonds is excludible from gross income for Federal income tax purposes and is not treated as a specific item of tax preference for purposes of the alternative minimum tax imposed on individuals and corporations under the Internal Revenue Code of 1986, as amended, and (ii) the Series 2014 Bonds, the transfer thereof, and the income therefrom, including any profit made on the sale thereof, will be exempt from taxation within the State of Ohio, all subject to the qualifications described herein under the heading “TAX MATTERS.” See “TAX MATTERS” herein. $23,315,000 COUNTY OF FRANKLIN, OHIO HEALTH CARE FACILITIES REVENUE REFUNDING AND IMPROVEMENT BONDS, SERIES 2014 (FRIENDSHIP VILLAGE OF DUBLIN, OHIO, INC.) Dates, Interest Rates, Prices, Yields and CUSIPs are shown on the inside of the Front Cover The County of Franklin, Ohio, acting by and through the County Hospital Commission of Franklin County (the “Issuer”), is issuing its $23,315,000 Health Care Facilities Revenue Refunding and Improvement Bonds, Series 2014 (Friendship Village of Dublin, Ohio, Inc.) (the “Series 2014 Bonds”). The Series 2014 Bonds will be issued and secured under an Indenture of Trust (Bond Indenture) (the “Bond Indenture”), dated as of December 1, 2014, between the Issuer and U.S. Bank National Association, as bond trustee (the “Bond Trustee”). The proceeds of the Series 2014 Bonds will be made available to Friendship Village of Dublin, Ohio, Inc., an Ohio nonprofit corporation (the “Corporation”), pursuant to a Sublease dated as of December 1, 2014 (as described herein) and will be used to: (i) refund the hereinafter defined Prior Bonds; (ii) finance, or reimburse the Corporation for, costs of the acquisition, construction, installation and equipping of certain independent living villas and routine capital expenditures for fiscal years 2014, 2015 and 2016 (the “Project”) and (iii) pay certain of the costs relating to the issuance of the Series 2014 Bonds, all as permitted by the Act, as defined herein. A more detailed description of the use of the proceeds from the sale of the Series 2014 Bonds is included under the captions “ESTIMATED SOURCES AND USES OF FUNDS” and “PLAN OF FINANCE.” Except as described in this Official Statement, the Series 2014 Bonds will be payable solely from and secured by a pledge of payments to be made under the Sublease and the Direct Note Obligation, Series 2014 issued by the Corporation under a Master Trust Indenture (the “Master Indenture”) among the Corporation, Birchton, LLC, Friendship Village of Dublin Home Care LLC (the initial members of the “Obligated Group” described herein) and U.S. Bank National Association, as master trustee (the “Master Trustee”). The sources of payment of, and security for, the Series 2014 Bonds are more fully described in this Official Statement. The Series 2014 Bonds are issuable only as fully registered bonds in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”) and will be available to ultimate purchasers (“Beneficial Owners”) under the book-entry only system maintained by DTC, only through brokers and dealers who are, or act through, DTC Participants. Purchases by Beneficial Owners will be made in book-entry only form in denominations of $5,000 or any integral multiple thereof. Beneficial Owners will not be entitled to receive physical delivery of the Series 2014 Bonds. So long as Cede & Co. is the registered owner of the Series 2014 Bonds, payments of principal or redemption price of and interest on the Series 2014 Bonds are required to be made to Beneficial Owners by DTC through its participants. See “BOOK-ENTRY ONLY SYSTEM” herein. An investment in the Series 2014 Bonds involves a certain degree of risk related to the nature of the business of the Obligated Group, the regulatory environment, and the provisions of the principal documents. A prospective investor in the Series 2014 Bonds is advised to read “SECURITY FOR THE SERIES 2014 BONDS,” “SECURITY FOR THE SERIES 2014 NOTE” and “BONDHOLDERS’ RISKS” herein for a description of the security for the Series 2014 Bonds and for a discussion of certain risk factors which should be considered in connection with an investment in the Series 2014 Bonds. The Series 2014 Bonds will be subject to optional, mandatory and extraordinary redemption, as more fully described herein. NEITHER THE PRINCIPAL OF THE SERIES 2014 BONDS NOR THE INTEREST ACCRUING THEREON, SHALL EVER CONSTITUTE A GENERAL INDEBTEDNESS OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION WHATSOEVER OR SHALL EVER CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF, NOR WILL THE SERIES 2014 BONDS BE, OR BE DEEMED TO BE, AN OBLIGATION OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF. The Series 2014 Bonds are offered, subject to prior sale, when, as and if issued, subject to the approval of their legality by Peck, Shaffer & Williams, a Division of Dinsmore & Shohl LLP, Columbus, Ohio, Bond Counsel. Certain legal matters will be passed upon for the Obligated Group by its special counsel, Vorys, Sater, Seymour and Pease LLP; and for the Underwriter by its counsel, Ice Miller LLP. It is expected that the Series 2014 Bonds in definitive form will be available for delivery through the services of DTC on or about December 3, 2014. This cover page contains certain information for ease of reference only. It does not constitute a summary of the Series 2014 Bonds or the security therefor. Potential investors must read this entire Official Statement, including the Appendices, to obtain information essential to the making of an informed investment decision. Official Statement dated November 13, 2014
Transcript
NEW ISSUE/BOOK-ENTRY RATING: Fitch: A- See “Rating” herein
In the opinion of Peck, Shaffer & Williams, a Division of Dinsmore & Shohl LLP, Bond Counsel, under existing laws, regulations, rulings and court decisions, (i) assuming compliance with certain covenants, interest on the Series 2014 Bonds is excludible from gross income for Federal income tax purposes and is not treated as a specific item of tax preference for purposes of the alternative minimum tax imposed on individuals and corporations under the Internal Revenue Code of 1986, as amended, and (ii) the Series 2014 Bonds, the transfer thereof, and the income therefrom, including any profit made on the sale thereof, will be exempt from taxation within the State of Ohio, all subject to the qualifications described herein under the heading “TAX MATTERS.” See “TAX MATTERS” herein.
$23,315,000COUNTY OF FRANKLIN, OHIO
HEALTH CARE FACILITIES REVENUE REFUNDING AND IMPROVEMENT BONDS,
SERIES 2014(FRIENDSHIP VILLAGE OF DUBLIN, OHIO, INC.)
Dates, Interest Rates, Prices, Yields and CUSIPs are shown on the inside of the Front Cover
The County of Franklin, Ohio, acting by and through the County Hospital Commission of Franklin County (the “Issuer”), is issuing its $23,315,000 Health Care Facilities Revenue Refunding and Improvement Bonds, Series 2014 (Friendship Village of Dublin, Ohio, Inc.) (the “Series 2014 Bonds”). The Series 2014 Bonds will be issued and secured under an Indenture of Trust (Bond Indenture) (the “Bond Indenture”), dated as of December 1, 2014, between the Issuer and U.S. Bank National Association, as bond trustee (the “Bond Trustee”). The proceeds of the Series 2014 Bonds will be made available to Friendship Village of Dublin, Ohio, Inc., an Ohio nonprofit corporation (the “Corporation”), pursuant to a Sublease dated as of December 1, 2014 (as described herein) and will be used to: (i) refund the hereinafter defined Prior Bonds; (ii) finance, or reimburse the Corporation for, costs of the acquisition, construction, installation and equipping of certain independent living villas and routine capital expenditures for fiscal years 2014, 2015 and 2016 (the “Project”) and (iii) pay certain of the costs relating to the issuance of the Series 2014 Bonds, all as permitted by the Act, as defined herein. A more detailed description of the use of the proceeds from the sale of the Series 2014 Bonds is included under the captions “ESTIMATED SOURCES AND USES OF FUNDS” and “PLAN OF FINANCE.” Except as described in this Official Statement, the Series 2014 Bonds will be payable solely from and secured by a pledge of payments to be made under the Sublease and the Direct Note Obligation, Series 2014 issued by the Corporation under a Master Trust Indenture (the “Master Indenture”) among the Corporation, Birchton, LLC, Friendship Village of Dublin Home Care LLC (the initial members of the “Obligated Group” described herein) and U.S. Bank National Association, as master trustee (the “Master Trustee”). The sources of payment of, and security for, the Series 2014 Bonds are more fully described in this Official Statement.
The Series 2014 Bonds are issuable only as fully registered bonds in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”) and will be available to ultimate purchasers (“Beneficial Owners”) under the book-entry only system maintained by DTC, only through brokers and dealers who are, or act through, DTC Participants. Purchases by Beneficial Owners will be made in book-entry only form in denominations of $5,000 or any integral multiple thereof. Beneficial Owners will not be entitled to receive physical delivery of the Series 2014 Bonds. So long as Cede & Co. is the registered owner of the Series 2014 Bonds, payments of principal or redemption price of and interest on the Series 2014 Bonds are required to be made to Beneficial Owners by DTC through its participants. See “BOOK-ENTRY ONLY SYSTEM” herein.
An investment in the Series 2014 Bonds involves a certain degree of risk related to the nature of the business of the Obligated Group, the regulatory environment, and the provisions of the principal documents. A prospective investor in the Series 2014 Bonds is advised to read “SECURITY FOR THE SERIES 2014 BONDS,” “SECURITY FOR THE SERIES 2014 NOTE” and “BONDHOLDERS’ RISKS” herein for a description of the security for the Series 2014 Bonds and for a discussion of certain risk factors which should be considered in connection with an investment in the Series 2014 Bonds.
The Series 2014 Bonds will be subject to optional, mandatory and extraordinary redemption, as more fully described herein.
NEITHER THE PRINCIPAL OF THE SERIES 2014 BONDS NOR THE INTEREST ACCRUING THEREON, SHALL EVER CONSTITUTE A GENERAL INDEBTEDNESS OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION WHATSOEVER OR SHALL EVER CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF, NOR WILL THE SERIES 2014 BONDS BE, OR BE DEEMED TO BE, AN OBLIGATION OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF.
The Series 2014 Bonds are offered, subject to prior sale, when, as and if issued, subject to the approval of their legality by Peck, Shaffer & Williams, a Division of Dinsmore & Shohl LLP, Columbus, Ohio, Bond Counsel. Certain legal matters will be passed upon for the Obligated Group by its special counsel, Vorys, Sater, Seymour and Pease LLP; and for the Underwriter by its counsel, Ice Miller LLP. It is expected that the Series 2014 Bonds in definitive form will be available for delivery through the services of DTC on or about December 3, 2014.
This cover page contains certain information for ease of reference only. It does not constitute a summary of the Series 2014 Bonds or the security therefor. Potential investors must read this entire Official Statement, including the Appendices, to obtain information essential to the making of an informed investment decision.
Official Statement dated November 13, 2014
THE SERIES 2014 BONDS
Dated: Date of Delivery Due: November 15, as shown below
The Series 2014 Bonds will be issuable in fully registered form without coupons in denominations of $5,000 or any integral multiple thereof. Interest on the Series 2014 Bonds will be payable on each May 15 and November 15, commencing on May 15, 2015.
$4,965,000 5.00% Term Bonds due November 15, 2034; Price: 107.714c% to yield 4.050%; CUSIP: 353180JP8
$13,150,000 5.00% Term Bonds due November 15, 2044; Price: 105.450c% to yield 4.320%; CUSIP: 353180JQ6 c Priced to first optional redemption date of November 15, 2024.
CUSIP is a registered trademark of American Bankers Association. CUSIP data herein are provided by Standard & Poor’s,
CUSIP Service Bureau, a division of The McGraw-Hill Companies, Inc. The CUSIP numbers listed are being provided solely for the convenience of the Series 2014 Bondholders only at the time of issuance of the Series 2014 Bonds and neither the Issuer nor the Obligated Group makes any representation with respect to such numbers or undertake any responsibility for their accuracy now or at any time in the future. The CUSIP number for a specific maturity is subject to being changed after the issuance of the Series 2014 Bonds as a result of various subsequent actions including, but not limited to, a refunding in whole or in part of such maturity or as a result of the procurement of secondary market portfolio insurance or other similar enhancement by investors that is applicable to all or a portion of certain maturities of the Series 2014 Bonds.
Site Location
MAIN ST
AlumCreek
Reservoir
Alum
HooverReservoir
lnut
Creek
PortColumbus
Airport
3
270
270
270
270
71
71
71
670
670
70
70
THE OHIO STATE UNIVERSITY
771
COLUMBUS ZOO & AQUARIUM
MUIRFIELD VILLAGE GOLF CLUB
Living Accommodations
Top: Residential Living Apartments
Middle: Residential Living Villas
Bottom: Residential Living Apartments
Top: Residential Living Apartments
Middle: Residential Living Villas
Amenities
Top: Fitness Room
Bottom: Bistro
Top: Indoor Pool
Bottom: Dining Room
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TABLE OF CONTENTS
Page
SUMMARY STATEMENT .......................................................................................................................... i
OFFICIAL STATEMENT ............................................................................................................................ 1
INTRODUCTION ........................................................................................................................................ 1 Purpose of this Official Statement .......................................................................................................... 1 The Issuer ............................................................................................................................................... 1 The Corporation and the Obligated Group ............................................................................................. 1 The Series 2014 Bonds ........................................................................................................................... 2 Purpose of the Series 2014 Bonds .......................................................................................................... 2 Security for the Series 2014 Bonds ........................................................................................................ 3
PLAN OF FINANCE .................................................................................................................................... 5 Series 2014 Bonds .................................................................................................................................. 5 Refunding of Prior Bonds ....................................................................................................................... 6 Project ..................................................................................................................................................... 6
ESTIMATED SOURCES AND USES OF FUNDS .................................................................................... 7
ANNUAL DEBT SERVICE REQUIREMENTS ......................................................................................... 8
THE SERIES 2014 BONDS ......................................................................................................................... 9 General Description ................................................................................................................................ 9 Redemption of the Series 2014 Bonds ................................................................................................... 9
BOOK-ENTRY ONLY SYSTEM .............................................................................................................. 12
SECURITY FOR THE SERIES 2014 NOTE ............................................................................................. 14 General ................................................................................................................................................. 14 The Mortgage ....................................................................................................................................... 14 Security Interest in Gross Revenues ..................................................................................................... 15 Additional Indebtedness ....................................................................................................................... 16 Certain Covenants of the Obligated Group .......................................................................................... 16 Rights of Holders of Accelerable Instruments Under Master Indenture .............................................. 19 Additional Covenants for the Benefit of the Bank ............................................................................... 20 Cross Default ........................................................................................................................................ 20
SECURITY FOR THE SERIES 2014 BONDS .......................................................................................... 20 Special and Limited Obligations of the Issuer ...................................................................................... 20 Lease and Sublease ............................................................................................................................... 21 Bond Indenture ..................................................................................................................................... 21 Debt Service Reserve Fund .................................................................................................................. 21
THE ISSUER .............................................................................................................................................. 23
BONDHOLDERS' RISKS .......................................................................................................................... 23 Cautionary Statements Regarding Forward-Looking Statements in this Official Statement ............... 23 General ................................................................................................................................................. 24 Sale of Personal Residences ................................................................................................................. 24 Potential Refund of Entrance Fees ....................................................................................................... 24 Nature of Income and Assets of the Elderly ......................................................................................... 24 Organized Resident Activity ................................................................................................................ 25 Competition .......................................................................................................................................... 25
Changing Capabilities of Home Health Care Technology; Impact on Demand for Facility ................ 25 Additions to, and Withdrawals from, the Obligated Group.................................................................. 26 Adequacy of Remedies ......................................................................................................................... 26 Uncertainty of Revenues ...................................................................................................................... 26 Uncertainty of Investment Income ....................................................................................................... 26 Malpractice Claims and Losses ............................................................................................................ 26 Implementation of Master Plan ............................................................................................................ 27 Construction Risks ............................................................................................................................... 27 Management Agreement; Relationship with Life Care Services, LLC ................................................ 28 No Actuarial Study ............................................................................................................................... 29 Ohio Attorney General Inquiry ............................................................................................................ 29 Health Care Reform .............................................................................................................................. 30 Third-Party Reimbursement ................................................................................................................. 32 State Regulatory Issues ........................................................................................................................ 35 Rights of Residents ............................................................................................................................... 36 Intermediate Sanctions ......................................................................................................................... 37 Possible Changes in Tax Status ............................................................................................................ 38 Change in Federal Tax Law ................................................................................................................. 39 Lack of Marketability for the Series 2014 Bonds ................................................................................. 39 Amendments to the Documents ............................................................................................................ 39 Bankruptcy ........................................................................................................................................... 40 Additional Debt .................................................................................................................................... 40 Certain Matters Relating to Enforceability of the Master Indenture .................................................... 41 Impact of Disruption in the Credit Markets and General Economic Factors ....................................... 43 Risks Inherent in Bank-Credit .............................................................................................................. 44 Creditworthiness of Banks; Renewal Risk ........................................................................................... 45 Risks Related to Series 2004A Bonds and Other Variable Rate Obligations; Interest Rate Swaps
and Other Hedge Risk ................................................................................................................... 45 Environmental Matters ......................................................................................................................... 47 Factors Affecting Real Estate Taxes .................................................................................................... 47 Change in Accounting Principles ......................................................................................................... 47 Rights of Holders of Accelerable Instruments Under Master Indenture .............................................. 48 Mortgaged Property .............................................................................................................................. 48 Rating on Series 2014 Bonds; Market for Series 2014 Bonds ............................................................. 49 Other Possible Risk Factors.................................................................................................................. 49
LITIGATION .............................................................................................................................................. 55 The Issuer ............................................................................................................................................. 55 The Obligated Group ............................................................................................................................ 56
CERTAIN RELATIONSHIPS ................................................................................................................... 56
TAX MATTERS ......................................................................................................................................... 57 Original Issue Premium ........................................................................................................................ 58 Backup Withholding ............................................................................................................................. 58 Changes in Federal and State Tax Law ................................................................................................ 59
APPENDIX A – SELECTED INFORMATION REGARDING FRIENDSHIP VILLAGE OF DUBLIN, OHIO, INC.
APPENDIX B – OBLIGATED GROUP'S AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2012, 2013 and 2014
APPENDIX C – SUMMARY OF PRINCIPAL DOCUMENTS APPENDIX D – FORM OF OPINION OF BOND COUNSEL
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REGARDING USE OF THIS OFFICIAL STATEMENT
IN CONNECTION WITH THE OFFERING OF THE SERIES 2014 BONDS, THE UNDERWRITER MAY OVERALLOT OR EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE SERIES 2014 BONDS AT LEVELS ABOVE THOSE WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH STABILIZATION, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
No dealer, broker, sales representative or other person has been authorized by the Issuer, the Obligated Group or the Underwriter to give any information or to make any representations other than those contained in this Official Statement, and, if given or made, such other information or representations must not be relied upon as having been authorized by any of the foregoing. This Official Statement does not constitute an offer to sell or the solicitation of an offer to buy, and there shall not be any sale of the Series 2014 Bonds by any person in any jurisdiction in which it is unlawful for such person to make such offer, solicitation or sale.
The information contained in this Official Statement has been furnished by the Obligated Group, the Issuer, DTC and other sources which are believed to be reliable, but such information is not guaranteed as to accuracy or completeness by, and is not to be construed as a representation of, the Underwriter. The information and expressions of opinion herein are subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall, under any circumstances, create any implication that there has been no change in the affairs of the parties referred to above since the date hereof.
The Underwriter has provided the following sentence for inclusion in this Official Statement. The Underwriter has reviewed the information in this Official Statement in accordance with, and as part of, its responsibilities to investors under the federal securities laws as applied to the facts and circumstances of this transaction, but the Underwriter does not guarantee the accuracy or completeness of such information.
The information set forth herein relating to the Issuer under the headings “THE ISSUER” and “LITIGATION – The Issuer” has been obtained from the Issuer. All other information herein has been obtained by the Underwriter from the Obligated Group and other sources deemed by the Underwriter to be reliable, and is not to be construed as a representation by, the Issuer or the Underwriter. The Issuer has not reviewed or approved any information in this Official Statement except information relating to the Issuer under the headings “THE ISSUER” and “LITIGATION – The Issuer.” The information herein is subject to change without notice, and neither the delivery of this Official Statement nor any sale made hereunder shall under any circumstances create any implication that there has been no change in the affairs of the Issuer or the Obligated Group since the date hereof.
THE SERIES 2014 BONDS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE BOND INDENTURE AND THE MASTER INDENTURE HAVE NOT BEEN QUALIFIED UNDER THE TRUST INDENTURE ACT OF 1939, AS AMENDED, IN RELIANCE UPON EXEMPTIONS CONTAINED IN SUCH ACTS. THE REGISTRATION OR QUALIFICATION OF THE SERIES 2014 BONDS IN ACCORDANCE WITH APPLICABLE PROVISIONS OF LAWS OF THE STATES IN WHICH SERIES 2014 BONDS HAVE BEEN REGISTERED OR QUALIFIED AND THE EXEMPTION FROM REGISTRATION OR QUALIFICATION IN OTHER STATES CANNOT BE REGARDED AS A RECOMMENDATION THEREOF. NEITHER THESE STATES NOR ANY OF THEIR AGENCIES HAVE PASSED UPON THE MERITS OF THE SERIES 2014 BONDS OR THE ACCURACY OR COMPLETENESS OF THIS OFFICIAL STATEMENT. ANY REPRESENTATION TO THE CONTRARY MAY BE A CRIMINAL OFFENSE.
CAUTIONARY STATEMENTS REGARDING FORWARD-LOOKING STATEMENTS IN THIS OFFICIAL STATEMENT
Certain statements included or incorporated by reference in this Official Statement constitute “forward-looking statements” within the meaning of the United States Private Securities Litigation Reform Act of 1995, Section 21E of the United States Securities Exchange Act of 1934, as amended, and Section 27A of the United States Securities Act of 1933, as amended. Such statements are generally identifiable by the terminology used such as “plan,” “expect,” “estimate,” “budget,” “anticipate” or other similar words. Such forward-looking statements include, but are not limited to, certain statements contained in APPENDIX A – “SELECTED INFORMATION REGARDING FRIENDSHIP VILLAGE OF DUBLIN, OHIO, INC.” herein.
THE ACHIEVEMENT OF CERTAIN RESULTS OR OTHER EXPECTATIONS CONTAINED IN SUCH FORWARD-LOOKING STATEMENTS INVOLVE KNOWN AND UNKNOWN RISKS, UNCERTAINTIES AND OTHER FACTORS WHICH MAY CAUSE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS DESCRIBED TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS EXPRESSED OR IMPLIED BY SUCH FORWARD-LOOKING STATEMENTS. THE OBLIGATED GROUP DOES NOT PLAN TO ISSUE ANY UPDATES OR REVISIONS TO THOSE FORWARD-LOOKING STATEMENTS IF OR WHEN ITS EXPECTATIONS, OR EVENTS, CONDITIONS OR CIRCUMSTANCES ON WHICH SUCH STATEMENTS ARE BASED OCCUR.
(i)
SUMMARY STATEMENT
The information set forth in this Summary Statement is subject in all respects to more complete information set forth elsewhere in this Official Statement, which should be read in its entirety. The offering of the Series 2014 Bonds to potential investors is made only by means of this entire Official Statement. No person is authorized to detach this Summary Statement from this Official Statement or otherwise to use it without this entire Official Statement.
For the definitions of certain words and terms used herein, see “SUMMARY OF PRINCIPAL DOCUMENTS” in APPENDIX C.
The Series 2014 Bonds
The County of Franklin, Ohio, a county and political subdivision of the State of Ohio, acting by and through the County Hospital Commission of Franklin County (the “Issuer”), proposes to issue its $23,315,000 Health Care Facilities Revenue Refunding and Improvement Bonds, Series 2014 (Friendship Village of Dublin, Ohio, Inc.) (the “Series 2014 Bonds”). The Series 2014 Bonds will be subject to optional, mandatory and extraordinary redemption, as described in this Official Statement. A description of the Series 2014 Bonds is contained in this Official Statement under the caption “THE SERIES 2014 BONDS.”
The Series 2014 Bonds will be issued pursuant to the Constitution and laws of the State of Ohio, including Chapter 140 of the Ohio Revised Code, as amended (the “Act”) and an Indenture of Trust (Bond Indenture), dated as of December 1, 2014 (the “Bond Indenture”), by and between the Issuer and U.S. Bank National Association, as bond trustee (the “Bond Trustee”). The proceeds of the Series 2014 Bonds will be made available to Friendship Village of Dublin, Ohio, Inc., an Ohio nonprofit corporation (the “Corporation”), pursuant to a Sublease dated as of December 1, 2014 (the “Sublease”), by and between the Corporation and the Issuer.
Purpose of the Series 2014 Bonds
The Corporation will use the proceeds from the sale of the Series 2014 Bonds, together with other available funds, to (i) refund and retire all of the outstanding principal amount of the Issuer's $19,820,000 County of Franklin, Ohio Adjustable Rate Demand Health Care Facilities Revenue Bonds, Series 2004B (Friendship Village of Dublin, Ohio, Inc. Project) (the “Prior Bonds”) (ii) finance, or reimburse the Corporation for, costs of the acquisition, construction, installation and equipping of real and personal property comprising of Hospital Facilities, including without limitation, the acquisition, construction, installation and equipping of certain independent living villas and routine capital expenditures for fiscal years 2014, 2015 and 2016 (the "Project"); and (iii) pay certain expenses incurred in connection with the issuance of the Series 2014 Bonds, all as permitted by the Act. A more detailed description of the use of the proceeds from the sale of the Series 2014 Bonds is included under the captions “PLAN OF FINANCE” and “ESTIMATED SOURCES AND USES OF FUNDS”.
The Corporation and the Obligated Group
The Corporation was incorporated in 1978 as an Ohio nonprofit corporation for the purpose of providing housing, health care, home health, and other related services to the elderly. The Corporation is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). The Corporation operates a 366-unit campus located in Dublin, Ohio which consists of 244 independent living apartments, 16 independent living villas, a 46-unit assisted-living facility, and a 60-bed skilled nursing facility. The nursing beds are dually certified for participation in the Medicare and Medicaid programs and are licensed by the Ohio Department of Health. The Corporation is accredited by
(ii)
the Commission on Accreditation of Rehabilitation Facilities - Continuing Care Accreditation Commission ("CARF-CCAC"), a member of CARF International, which offers an external third-party review of quality assurance for the public.
Under an agreement with Life Care Services, LLC (the "Manager"), the Corporation utilizes the Manager to manage the Corporation’s operations. The Manager receives a monthly management fee for these services which include, but are not limited to, information systems, marketing, risk management, and financial systems. In addition, the Manager is reimbursed for authorized expenditures incurred on behalf of the Corporation.
In September, 2007, the Corporation organized Birchton, LLC ("Birchton"). Birchton was organized to hold and develop real estate for possible future expansion of the Corporation. Birchton is the sole member of Triangle Housing, LLC, an Ohio limited liability company formed in December 2013 (“Triangle Housing”). In May, 2014, the Corporation organized Friendship Village of Dublin Home Care LLC ("Home Care"). Home Care was organized to carry out the home services component of the Corporation’s business. The Corporation is the sole member of each of Birchton and Home Care.
The Corporation, Birchton and Home Care are the initial members of the Obligated Group under the Master Indenture. Triangle Housing is not a member of the Obligated Group.
Further information regarding the Obligated Group is included in APPENDIX A.
Security for the Series 2014 Bonds
Special and Limited Obligations of the Issuer. NEITHER THE PRINCIPAL OF THE SERIES 2014 BONDS NOR THE INTEREST ACCRUING THEREON SHALL EVER CONSTITUTE A GENERAL INDEBTEDNESS OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION WHATSOEVER OR SHALL EVER CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF, NOR WILL THE SERIES 2014 BONDS BE, OR BE DEEMED TO BE, AN OBLIGATION OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF.
The Lease and Sublease. The Corporation will lease certain of its facilities (the “Existing
Facilities”) to the Issuer pursuant to an Agreement of Lease dated as of December 1, 2014 (the “Lease”). The Issuer and the Corporation will also enter into a Sublease dated as of December 1, 2014 (the “Sublease”) pursuant to which the Issuer will sublease the Existing Facilities back to the Corporation for rentals sufficient, among other things, to pay in full when due all principal of, and redemption premium, if any, and interest on the Series 2014 Bonds. See “SECURITY FOR THE SERIES 2014 BONDS – General.” The Issuer’s rights and interest in the Trust Estate under the Bond Indenture and the right to receive payments of Basic Rent under the Sublease have been assigned directly to the Bond Trustee. The Issuer’s other rights and interest in the Sublease will be assigned to the Master Trustee pursuant to the Assignment of Rights Under Agreement of Lease and Sublease (the “Assignment”) from the Issuer in favor of the Master Trustee.
The Bond Indenture. Under the Bond Indenture, the Issuer will pledge and assign to the Bond Trustee as security for the payment of principal of, premium, if any, and interest on the Series 2014 Bonds, all of its right, title and interest in and to (i) payments of Basic Rent under the Sublease (other than Unassigned Rights), (ii) all moneys and securities held by the Bond Trustee under the Bond Indenture and (iii) any and all other property of every kind and nature from time to time pledged as
(iii)
additional security under the Bond Indenture. See “SECURITY FOR THE SERIES 2014 BONDS” herein.
The Debt Service Reserve Fund. The Debt Service Reserve Fund established under the Bond Indenture will not be funded on the date of issuance of the Series 2014 Bonds, and will only be funded, and may be released, upon certain conditions described herein under the caption “SECURITY FOR THE SERIES 2014 BONDS - Debt Service Reserve Fund". When and if funded, and until any release, the Debt Service Reserve Fund will secure the payment of the principal of, premium, if any, and interest on the Series 2014 Bonds.
The Master Indenture and the Series 2014 Note. The Series 2014 Bonds will be secured in part by the Corporation's Direct Note Obligation, Series 2014 in the aggregate principal amount of $23,315,000 (the “Series 2014 Note"). The Series 2014 Note will be issued pursuant to a Master Trust Indenture dated as of December 1, 2014 (the “Master Indenture”), by and among the Corporation, Birchton and Home Care, as the initial members of an obligated group (each a “Member,” and collectively with any other entities that may become a Member, the “Obligated Group”), and U.S. Bank National Association, as master trustee (the “Master Trustee”). The Corporation will issue the Series 2014 Note in favor of the Bond Trustee. The terms of the Series 2014 Note will require payments by the Corporation which, together with other moneys available therefor (and interest earned thereon), will be sufficient to provide for the payment of the principal of, premium, if any, and interest on the Series 2014 Bonds.
The Series 2014 Note will entitle the Bond Trustee, as the holder thereof, to the protection of the covenants, restrictions and other obligations imposed upon the Obligated Group by the Master Indenture. The Members of the Obligated Group will be jointly and severally liable on all Obligations, including the Series 2014 Note, which are issued under the Master Indenture. All Obligations issued by any of the Members of the Obligated Group will be equally and ratably secured by (i) a mortgage on the Mortgaged Property described below and (ii) a security interest in the Gross Revenues of the Obligated Group, subject in each case only to Permitted Encumbrances. See “SECURITY FOR THE SERIES 2014 NOTE – General.”
Series 2004A Bonds and Series 2004A Note. Concurrently with the issuance of the Series 2014 Bonds, the Corporation will issue its Direct Note Obligation, Series 2004A (the "Series 2004A Note") in order to secure its payment obligations with respect to the Issuer’s $13,805,000 Adjustable Rate Demand Health Care Facilities Revenue Refunding Bonds, Series 2004A (Friendship Village of Dublin, Ohio, Inc.) (the "Series 2004A Bonds"), which Series 2004A Bonds will be outstanding on the date of issuance of the Series 2014 Bonds in the principal amount of $7,470,000, with a final maturity date of November 1, 2022. The principal amount of the Series 2004A Note will equal the outstanding principal amount of the Series 2004A Bonds.
2004A Swap. To hedge its variable interest rate risk with respect to the Series 2004A Bonds, the Corporation has entered into an interest rate swap transaction with a counterparty (the “2004A Swap”). The current notional amount of the 2004A Swap is the same as the current outstanding principal amount of the Series 2004A Bonds, and the termination date of the 2004A Swap is November 1, 2022, which is also the final maturity date of the Series 2004A Bonds. Under the 2004A Swap, the Corporation pays a fixed amount and receives from the swap counterparty a variable amount based upon a variable index or interest rate, not the actual variable rate payable on the Series 2004A Bonds. The Corporation’s payment obligations under the 2004A Swap are general, unsecured obligations of the Corporation, and are not secured by an Obligation issued under the Master Indenture.
Series 2004A LOC Note. Also concurrently with the issuance of the Series 2014 Bonds and the Series 2004A Note, to secure the Corporation’s payment obligations under the Amended and Restated
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Reimbursement, Credit and Security Agreement (the “2004 Reimbursement Agreement”) between the Corporation and PNC Bank, National Association (the “Bank”), pursuant to which a direct-pay letter of credit has been delivered by the Bank to secure the payment of principal of and interest on the Series 2004A Bonds, the Corporation, pursuant to the Master Indenture, will execute and deliver to the Bank the Direct Note Obligation, Series 2004A LOC (the “Series 2004A LOC Note” and, together with the Series 2014 Note and the Series 2004A Note, the “Initial Master Notes”).
As the holder of the Series 2004A LOC Note, the Bank is entitled to the same Master Indenture covenants and collateral as any other holder of Obligations. In addition, the Corporation has agreed in the 2004 Reimbursement Agreement to additional and/or more restrictive covenants in favor of the Bank, as described herein under the caption “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the 2004 Reimbursement Agreement” in APPENDIX C.
See “ANNUAL DEBT SERVICE REQUIREMENTS” herein for principal and interest
requirements for the Series 2014 Bonds and the Series 2004A Bonds. Upon the issuance of the Series 2014 Bonds and the refunding of the Prior Bonds, the Obligated Group's only long-term indebtedness will consist of the Series 2014 Bonds and the Series 2004A Bonds.
Security for Obligations. Each Obligation will entitle the holder thereof to the protection of the
covenants, restrictions and other obligations imposed upon the Obligated Group by the Master Indenture. The Obligated Group will be obligated on all Obligations, including the Initial Master Notes, which are issued pursuant to the Master Indenture. All Obligations issued by the Corporation and the other Members of the Obligated Group will be equally and ratably secured by (i) a mortgage on the real property on which the Existing Facilities are located and the fixtures thereon and (ii) a security interest in the Gross Revenues of the Obligated Group, subject in each case only to Permitted Encumbrances. See “SECURITY FOR THE SERIES 2014 NOTE – General.”
The Mortgage. Pursuant to an Open-End Mortgage, Assignment of Leases and Rents, Fixture Filing and Security Agreement dated as of December 1, 2014 (the “Mortgage”), the Corporation will grant the Master Trustee: (i) a first mortgage lien on the real property on which the Corporation's retirement community is located, and (ii) a security interest in the personal property and fixtures located on the real property on which the Corporation's retirement community is located (collectively, the “Mortgaged Property”), in each case subject to Permitted Encumbrances, as security for the payment of the Initial Master Notes and all other Obligations hereafter issued under the Master Indenture. No real or personal property of either Birchton or Home Care is mortgaged or pledged as security for Obligations issued under the Master Indenture.
Security Interest in Gross Revenues. Pursuant to the Master Indenture, each Member of the Obligated Group has granted a security interest (subject to Permitted Encumbrances) in its Gross Revenues as security for the payment of the Initial Master Notes and all other Obligations hereafter issued under the Master Indenture. See “SECURITY FOR THE SERIES 2014 NOTE” and “BONDHOLDERS' RISKS – Certain Matters Relating to Enforceability of the Master Indenture” herein.
Additional Obligations and Additional Indebtedness. The Master Indenture permits the Members of the Obligated Group to issue Additional Indebtedness (including Guaranties) which may, but need not, be evidenced or secured by an Additional Obligation issued under the Master Indenture. In certain circumstances, the Members of the Obligated Group may issue Additional Obligations under the Master Indenture to the Issuer or to persons other than the Issuer that will not be pledged under the Bond Indenture but will be equally and ratably secured with the Initial Master Notes. Under the terms of the Master Indenture, Additional Obligations may also be entitled to the benefit of security in addition to that
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securing the Obligations outstanding under the Master Indenture (including the Initial Master Notes). See “SECURITY FOR THE SERIES 2014 NOTE – Additional Indebtedness.” The Initial Master Notes and any Additional Obligations to be issued by the Members of the Obligated Group under the Master Indenture (whether or not pledged under the Bond Indenture or any Related Bond Indentures) are collectively referred to herein as the “Obligations.”
Certain Covenants of the Obligated Group
Rates and Charges. The Obligated Group covenants and agrees that the Obligated Group Agent will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year, commencing with the Fiscal Year ending on June 30, 2015 and deliver a copy of such calculation to the Required Information Recipients.
If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.20:1, the Master Trustee shall require the Obligated Group, at the Obligated Group’s expense, to select a Consultant within 30 days following the calculation described in the preceding paragraph to make recommendations with respect to the rates, fees and charges of the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase such Historical Debt Service Coverage Ratio to at least 1.20:1 for the following Fiscal Year.
The Consultant selected as described in this heading shall be approved and retained as summarized below and in APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Approval of Consultants.”
If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the levels required by the Master Indenture and summarized above, the Master Trustee shall not be obligated to require the Obligated Group to retain a Consultant to make recommendations in certain instances.
If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the levels required by the Master Indenture and summarized above, no event of default relating to such failure may be declared under the Master Indenture unless (i) the Obligated Group fails to take all necessary action to comply with the procedures set forth in the Master Indenture and described above if the Historical Debt Service Coverage Ratio is less than 1.20:1 for any Fiscal Year; or (ii) the Historical Debt Service Coverage Ratio is less than 1.00:1 and the Days Cash on Hand is less than the Liquidity Requirement as of a Testing Date (as such terms are defined below under the caption “Liquidity Covenant”); or (iii) the Historical Debt Service Coverage Ratio is less than 1.00:1 for any two consecutive Fiscal Years.
See “SECURITY FOR THE SERIES 2014 NOTE – Certain Covenants of the Obligated Group – Rates and Charges” herein and “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Rates and Charges” in APPENDIX C. Liquidity Covenant. The Obligated Group covenants that it will calculate the Days Cash on Hand of the Obligated Group as of June 30 of each Fiscal Year (each such date being a “Testing Date”), commencing June 30, 2015.
Each Obligated Group Member is required to conduct its business so that on each Testing Date the Obligated Group shall have no less than 120 Days Cash on Hand (the “Liquidity Requirement”). If the amount of Days Cash on Hand as of any Testing Date is less than the Liquidity Requirement, the Obligated Group Agent shall, within 30 days after delivery of the Officer’s Certificate disclosing such deficiency, deliver an Officer’s Certificate approved by a resolution of the Governing Body of the
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Obligated Group Agent to the Master Trustee setting forth in reasonable detail the reasons for such deficiency and adopting a specific plan setting forth steps to be taken designed to raise the level of the Days Cash on Hand to the Liquidity Requirement for future periods.
If the Obligated Group has not raised the level of the Days Cash on Hand to the Liquidity Requirement by the Testing Date immediately subsequent to the delivery of the Officer’s Certificate required in the preceding paragraph, the Obligated Group Agent shall, within 30 days after delivery of the Officer’s Certificate disclosing such deficiency, select a Consultant to make recommendations with respect to the rates, fees and charges of the Obligated Group and the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase the Days Cash on Hand to the Liquidity Requirement for future periods. A copy of the Consultant’s report and recommendations, if any, shall be filed with each Member of the Obligated Group, the Master Trustee and each Required Information Recipient within 60 days after the date such Consultant is retained. Each Member of the Obligated Group shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Member) and permitted by law.
The Consultant selected as described in this heading shall be approved and retained as summarized below and in APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Approval of Consultants.”
Notwithstanding any other provision of the Master Indenture, failure of the Obligated Group to achieve the Liquidity Requirement for any Testing Date shall not constitute an event of default under the Master Indenture if the Obligated Group takes all action necessary to comply with the procedures set forth above for adopting a plan or retaining a Consultant and follows each recommendation contained in such plan or Consultant’s report to the extent feasible (as determined by the Governing Body of the Obligated Group Agent) and permitted by law.
See “SECURITY FOR THE SERIES 2014 NOTE – Certain Covenants of the Obligated Group – Liquidity Covenant” herein and “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Liquidity Covenant” in APPENDIX C.
Incurrence of Additional Indebtedness. The Obligated Group agrees in the Master Indenture to restrictions on the incurrence of additional indebtedness, as more fully described under the captions “SECURITY FOR THE SERIES 2014 NOTE – Additional Indebtedness” herein and APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Permitted Additional Indebtedness.” To the extent that the conditions provided in the Master Indenture are met, such indebtedness may be secured on a parity basis with the Initial Master Notes, including the Series 2014 Note.
Disposition of Property. The Obligated Group agrees in the Master Indenture to restrictions on the disposition of its Property, as more fully described under the caption “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Sale, Lease or Other Disposition of Property” in APPENDIX C hereto.
Approval of Consultants. Pursuant to the Master Indenture, the holders of outstanding Obligations have certain approval rights as to Consultants selected by the Obligated Group Agent. See “SECURITY FOR THE SERIES 2014 NOTE – Certain Covenants of the Obligated Group – Approval of Consultants,” and APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Approval of Consultants.”
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Debt Service Coverage Ratios and Other Financial Ratios
The following table reflects debt service coverage ratios and other financial ratios for the Obligated Group for the periods indicated. The table has been prepared by management of the Corporation and such ratios have been calculated in accordance with the provisions of the Master Indenture. The following summary was derived from the audited financial statements of the Obligated Group. This summary should be read in conjunction with the audited financial statements and related notes included in this Official Statement as APPENDIX B.
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Fiscal Year Ended June 30, 2012 2013 2014
Debt Service Coverage Ratio
Change in Unrestricted Net Assets - Performance Earnings $2,084,910 $5,511,427 $5,854,300
Plus:
Entrance Fees Received, Net of Initial Entrance Fees (1) $3,952,719 $2,837,241 $3,897,884
Pro Forma Interest Expense $1,489,606 $1,489,606 $1,489,606
Historical Pro Forma Number of Days Cash on Hand 1,095 1,127 1,207
(1) Amount shown net of Initial Entrance Fees of $328,000 (2012), $2,468,232 (2013), and $2,815,300 (2014). (2) Includes $4,748,900 of Series 2014 Bond proceeds used to reimburse the Corporation for prior capital expenditures, less the equity
contribution of $77,837 used to fund a portion of issuance costs. See “Plan of Finance” herein.
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Financial Reporting and Disclosure
Financial Reporting. The Master Indenture requires the Obligated Group Agent to furnish or cause to be furnished to, among others, the Master Trustee, the Underwriter, each Related Bond Trustee, EMMA (as described below) and any other municipal securities information repositories identified by the Securities and Exchange Commission, the Issuer and all owners of any Related Bonds who request such reports in writing (which written request shall include a certification as to such ownership) (the “Required Information Recipients”), the following:
(i) As soon as practicable after it is available but in no event more than 60 days after the completion of each fiscal quarter, quarterly occupancy statistics and unaudited financial statements of the Obligated Group (including a report with respect to the fourth quarter of each Fiscal Year), including a combined or combining statement of revenues and expenses and a statement of cash flows of the Obligated Group during such period and a combined or combining balance sheet as of the end of each such fiscal quarter with a comparison to the operating budget.
(ii) If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.00:1 or the Days Cash on Hand of the Obligated Group is less than the Liquidity Requirement for any Testing Date as provided in the Master Indenture, the Obligated Group will deliver the financial information and the calculations described in paragraph (i) above on a monthly basis with the Historical Debt Service Coverage Ratio calculated on a year-to-date basis each month, within 45 days of the end of each month until the Historical Debt Service Coverage Ratio of the Obligated Group is at least 1.00:1 and the Days Cash on Hand of the Obligated Group is at least equal to the Liquidity Requirement.
(iii) Within 150 days of the end of each Fiscal Year commencing with the Fiscal Year ending June 30, 2015, an annual financial report of the Obligated Group audited by a firm of certified public accountants, including a combined and an unaudited combining balance sheet as of the end of such Fiscal Year, a combined and an unaudited combining statement of changes in fund balances for such Fiscal Year and a combined and an unaudited combining statement of revenues and expenses for such Fiscal Year, showing in each case in comparative form the financial figures for the preceding Fiscal Year, together with a separate written statement of the accountants auditing such report containing calculations of the Obligated Group’s Historical Debt Service Coverage Ratio for said Fiscal Year and of the Obligated Group’s Days Cash on Hand as of the last day of such Fiscal Year and, if such accountants shall have obtained knowledge of any default or defaults under the Master Indenture, they shall disclose in such statement the default or defaults and the nature thereof.
(iv) On or before the date of delivery of the financial reports referred to in subsection (iii) above, an Officer’s Certificate of the Obligated Group Agent (A) stating that the Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indenture or if not, specifying all such defaults and the nature thereof, (B) calculating and certifying the Historical Debt Service Coverage Ratio and Days Cash on Hand as of the end of such fiscal period or Fiscal Year, as appropriate, (C) commencing with the Fiscal Year ending June 30, 2015, a comparison of the audited financial statements with the operating budget for the preceding Fiscal Year and (D) an executive summary of any actuarial studies received by the Obligated Group during the preceding Fiscal Year, if any, including any actuarial study required by the Master Indenture to be produced if the audited financial statements of the Obligated Group for any Fiscal Year show an increase in liabilities related to future service obligation, as described in “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Financial Statements and Related Matters” in APPENDIX C.
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(v) At any time during the Fiscal Year, copies of any correspondence to or from the Internal Revenue Service questioning or contesting the status of a Member as an organization described in Section 501(c)(3) of the Code or with respect to the tax-exempt status of the Series 2014 Bonds or any Related Bonds the interest on which is excludable from the gross income of the owners thereof for federal income tax purposes, promptly upon receipt.
See “FINANCIAL REPORTING AND CONTINUING DISCLOSURE – Financial Reporting” herein and “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Financial Statements and Related Matters” in APPENDIX C hereto for further information.
Continuing Disclosure. Offerings of municipal securities must comply with the provisions of Rule 15c2-12 of the Securities and Exchange Commission (as amended from time to time, the “Rule”). Given the sources of repayment for the Series 2014 Bonds and the Issuer’s special and limited obligation in respect thereof, the Issuer has determined that its financial and operating data are not material to a decision to purchase, hold or sell the Series 2014 Bonds. Consequently, the Issuer will not provide any such information.
However, the Corporation (on behalf of itself and the other Members of the Obligated Group) has agreed, pursuant to a Continuing Disclosure Undertaking, to make certain financial information and certain operating data with respect to it available to holders of the Series 2014 Bonds through EMMA (http://emma.msrb.org), the information repository of the Municipal Securities Rulemaking Board, to comply with the Rule. The Corporation is solely responsible for providing such continuing disclosure and the Issuer will not provide any such information. In addition, the Corporation will provide a copy of the information described under the heading “FINANCIAL REPORTING AND CONTINUING DISCLOSURE – Financial Reporting” to EMMA.
See “FINANCIAL REPORTING AND CONTINUING DISCLOSURE” herein.
Bondholders' Risks
AN INVESTMENT IN THE SERIES 2014 BONDS INVOLVES A CERTAIN DEGREE OF RISK INCLUDING THOSE SET FORTH UNDER THE HEADING “BONDHOLDERS' RISKS” HEREIN. A PROSPECTIVE SERIES 2014 BONDHOLDER IS ADVISED TO READ “SECURITY FOR THE SERIES 2014 BONDS – General,” “SECURITY FOR THE SERIES 2014 NOTE” AND “BONDHOLDERS' RISKS” FOR A DISCUSSION OF CERTAIN RISK FACTORS WHICH SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN THE SERIES 2014 BONDS. Careful consideration should be given to these risks and other risks described elsewhere in this Official Statement. Among other things, careful evaluation should be made of certain factors that may adversely affect the ability of the Members of the Obligated Group to generate sufficient revenues to pay expenses of operation, including the principal of, premium, if any, and interest on the Series 2014 Bonds.
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OFFICIAL STATEMENT
$23,315,000 COUNTY OF FRANKLIN, OHIO
HEALTH CARE FACILITIES REVENUE REFUNDING AND IMPROVEMENT BONDS,
SERIES 2014 (FRIENDSHIP VILLAGE OF DUBLIN, OHIO, INC.)
INTRODUCTION
Purpose of this Official Statement
The purpose of this Official Statement, including the cover and inside pages, the summary statement and the appendices, is to set forth certain information in connection with the offering by the County of Franklin, Ohio, acting by and through the County Hospital Commission of Franklin County (the “Issuer”) of its $23,315,000 Health Care Facilities Revenue Refunding and Improvement Bonds, Series 2014 (Friendship Village of Dublin, Ohio, Inc.) (the “Series 2014 Bonds”). Certain capitalized terms used in this Official Statement and not otherwise defined herein are defined in APPENDIX C. This Official Statement speaks only as of its date, and the information contained herein is subject to change.
The Issuer
The Issuer is a county and political subdivision of the State of Ohio, acting by and through the County Hospital Commission of Franklin County (the “Hospital Commission”), with full lawful power and authority to issue revenue obligations to pay costs of “hospital facilities” under and pursuant to the Constitution and laws of the State of Ohio, including Chapter 140, Ohio Revised Code, as amended (the “Act”). For further information concerning the Issuer, see “THE ISSUER” herein.
THE ISSUER HAS NOT SUPPLIED OR APPROVED, AND HAS NOT ASSUMED ANY RESPONSIBILITY FOR, AND MAKES NO REPRESENTATION OR WARRANTY WITH RESPECT TO, THE ACCURACY OR COMPLETENESS OF THE INFORMATION IN THIS OFFICIAL STATEMENT, INCLUDING THE APPENDICES HERETO, OTHER THAN THE INFORMATION CONCERNING THE ISSUER UNDER THE CAPTIONS “INTRODUCTION – The Issuer,” “THE ISSUER” AND THE INFORMATION UNDER THE CAPTION “LITIGATION – The Issuer.” Neither the principal of the Series 2014 Bonds nor the interest accruing thereon, shall ever constitute a general indebtedness of the Issuer, the State of Ohio or any political subdivision thereof within the meaning of any constitutional or statutory provision whatsoever or shall ever constitute or give rise to a pecuniary liability of the Issuer, the State of Ohio or any political subdivision thereof, nor will the Series 2014 Bonds be, or be deemed to be, an obligation of the Issuer, the State of Ohio or any political subdivision thereof.
The Corporation and the Obligated Group
The Corporation was incorporated in 1978 as an Ohio nonprofit corporation for the purpose of providing housing, health care, home health, and other related services to the elderly. The Corporation is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). The Corporation operates a 366-unit campus located in Dublin, Ohio which consists of 244 independent living apartments, 16 independent living villas, a 46-unit assisted-living facility (the
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“Residential Care Facility”), and a 60-bed skilled nursing facility (the “Health Care Center”) (collectively, the "Facility"). The nursing beds are dually certified for participation in the Medicare and Medicaid programs and are licensed by the Ohio Department of Health. The Corporation is accredited by the Commission on Accreditation of Rehabilitation Facilities - Continuing Care Accreditation Commission ("CARF-CCAC"), a member of CARF International, which offers an external third-party review of quality assurance for the public.
Under an agreement with Life Care Services, LLC (the "Manager"), the Corporation utilizes the Manager to manage the Corporation’s operations. The Manager receives a monthly management fee for these services which include, but are not limited to, information systems, marketing, risk management, and financial systems. In addition, the Manager is reimbursed for authorized expenditures incurred on behalf of the Corporation.
In September, 2007, the Corporation organized Birchton, LLC ("Birchton"). Birchton was organized to hold and develop real estate for possible future expansion of the Corporation. Birchton is the sole member of Triangle Housing, LLC, an Ohio limited liability company formed in December 2013 (“Triangle Housing”). In May, 2014, the Corporation organized Friendship Village of Dublin Home Care LLC ("Home Care"). Home Care was organized to carry out the home services component of the Corporation’s business. The Corporation is the sole member of each of Birchton and Home Care.
The Corporation, Birchton and Home Care are the initial members of the Obligated Group under the Master Indenture (as described herein). Triangle Housing is not a member of the Obligated Group.
For more information regarding the Obligated Group and the Facility, see APPENDIX A hereto. The audited financial statements of the Obligated Group, as of June 30, 2012, 2013 and 2014 and for the years then ended, are attached hereto as APPENDIX B.
The Series 2014 Bonds
The Series 2014 Bonds will be issued pursuant to the Act, a resolution of the Hospital Commission (the “Resolution”) and an Indenture of Trust (Bond Indenture) dated as of December 1, 2014 (the “Bond Indenture”), by and between the Issuer and U.S. Bank National Association, as bond trustee (the “Bond Trustee”). The Corporation will lease certain of its facilities (the "Existing Facilities") to the Issuer pursuant to an Agreement of Lease dated as of December 1, 2014 (the “Lease”). The Corporation and the Issuer will also enter into a Sublease dated as of December 1, 2014 (the “Sublease”), pursuant to which the Issuer will sublease the Existing Facilities back to the Corporation for rentals sufficient, among other things, to provide for the payment of the principal or redemption price of and interest on the Series 2014 Bonds. The proceeds of Series 2014 Bonds will be made available to the Corporation pursuant to the Sublease.
Purpose of the Series 2014 Bonds
The Corporation will use the proceeds from the sale of the Series 2014 Bonds, together with other available funds, to: (i) refund and retire all of the outstanding principal amount of the Issuer's $19,820,000 County of Franklin, Ohio Adjustable Rate Demand Health Care Facilities Revenue Bonds, Series 2004B (Friendship Village of Dublin, Ohio, Inc. Project) (the “Prior Bonds”) (ii) finance, or reimburse the Corporation for, costs of the acquisition, construction, installation and equipping of the acquisition, construction, installation and equipping of certain independent living villas and routine capital expenditures for fiscal years 2014, 2015 and 2016 (the "Project"); and (iii) pay certain expenses incurred in connection with the issuance of the Series 2014 Bonds, all as permitted by the Act. A more detailed
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description of the use of the proceeds from the sale of the Series 2014 Bonds is included under the captions “ESTIMATED SOURCES AND USES OF FUNDS” and “PLAN OF FINANCE.”
Security for the Series 2014 Bonds
Special and Limited Obligations of the Issuer. NEITHER THE PRINCIPAL OF THE SERIES 2014 BONDS NOR THE INTEREST ACCRUING THEREON SHALL EVER CONSTITUTE A GENERAL INDEBTEDNESS OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION WHATSOEVER OR SHALL EVER CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF, NOR WILL THE SERIES 2014 BONDS BE, OR BE DEEMED TO BE, AN OBLIGATION OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF.
The Lease and Sublease. The Corporation will lease certain of its facilities (the “Existing Facilities”) to the Issuer pursuant to an Agreement of Lease dated as of December 1, 2014 (the “Lease”). The Issuer and the Corporation will also enter into a Sublease dated as of December 1, 2014 (the “Sublease”) pursuant to which the Issuer will sublease the Existing Facilities back to the Corporation for rentals sufficient, among other things, to pay in full when due all principal of, and redemption premium, if any, and interest on the Series 2014 Bonds. See “SECURITY FOR THE SERIES 2014 BONDS – General.” The Issuer’s rights and interest in the Trust Estate under the Bond Indenture and the right to receive payments of Basic Rent under the Sublease have been assigned directly to the Bond Trustee. The Issuer’s other rights and interest in the Sublease will be assigned to the Master Trustee pursuant to the Assignment of Rights Under Agreement of Lease and Sublease (the “Assignment”) from the Issuer in favor of the Master Trustee.
The Bond Indenture. Under the Bond Indenture, the Issuer will pledge and assign to the Bond Trustee as security for the payment of principal of, premium, if any, and interest on the Series 2014 Bonds, all of its right, title and interest in and to (i) payments of Basic Rent under the Sublease (other than Unassigned Rights), (ii) all moneys and securities held by the Bond Trustee under the Bond Indenture and (iii) any and all other property of every kind and nature from time to time pledged as additional security under the Bond Indenture. See “SECURITY FOR THE SERIES 2014 BONDS” herein.
The Debt Service Reserve Fund. The Debt Service Reserve Fund established under the Bond Indenture will not be funded on the date of issuance of the Series 2014 Bonds, and will only be funded, and may be released, upon certain conditions described herein under the caption “SECURITY FOR THE SERIES 2014 BONDS - Debt Service Reserve Fund". When and if funded, and until any release, the Debt Service Reserve Fund will secure the payment of the principal of, premium, if any, and interest on the Series 2014 Bonds.
The Master Indenture and the Series 2014 Note. The Series 2014 Bonds will be secured in part by the Corporation’s Direct Note Obligation, Series 2014 in the aggregate principal amount of $23,315,000 (the “Series 2014 Note”). The Series 2014 Note will be issued pursuant to a Master Trust Indenture dated as of December 1, 2014 (the “Master Indenture”), among the Corporation, Birchton and Home Care, as the initial members of an obligated group (each a “Member,” and collectively with any other entities that may become a Member, the “Obligated Group”), and U.S. Bank National Association, as master trustee (the “Master Trustee”). The Corporation will issue the Series 2014 Note in favor of the Bond Trustee. The terms of the Series 2014 Note will require payments by the Corporation which,
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together with other moneys available therefor (and interest earned thereon), will be sufficient to provide for the payment of the principal of, premium, if any, and interest on the Series 2014 Bonds.
Series 2004A Bonds and Series 2004A Note. Concurrently with the issuance of the Series 2014 Bonds, the Corporation will issue its Direct Note Obligation, Series 2004A (the "Series 2004A Note") in order to secure its payment obligations with respect to the Issuer’s $13,805,000 Adjustable Rate Demand Health Care Facilities Revenue Refunding Bonds, Series 2004A (Friendship Village of Dublin, Ohio, Inc.) (the "Series 2004A Bonds"), which Series 2004A Bonds will be outstanding on the date of issuance of the Series 2014 Bonds in the principal amount of $7,470,000. The principal amount of the Series 2004A Note will equal the outstanding principal amount of the Series 2004A Bonds. The Series 2004A Bonds were issued to refinance certain then-existing bond indebtedness of the Corporation and to pay costs of issuing the Series 2004A Bonds. The Series 2004A Bonds bear interest at a variable rate that resets weekly, have monthly interest payment dates, and are subject to annual mandatory sinking fund redemption on November 1 of each year through the final maturity date of November 1, 2022.
2004A Swap. To hedge its variable interest rate risk with respect to the Series 2004A Bonds, the Corporation has entered into an interest rate swap transaction with a counterparty (the “2004A Swap”). The current notional amount of the 2004A Swap is the same as the current outstanding principal amount of the Series 2004A Bonds, and the termination date of the 2004A Swap is November 1, 2022, which is also the final maturity date of the Series 2004A Bonds. Under the 2004A Swap, the Corporation pays a fixed amount and receives from the swap counterparty a variable amount based upon a variable index or interest rate, not the actual variable rate payable on the Series 2004A Bonds. The Corporation’s payment obligations under the 2004A Swap are general, unsecured obligations of the Corporation, and are not secured by an Obligation issued under the Master Indenture.
Series 2004A LOC Note. Also concurrently with the issuance of the Series 2014 Bonds, to secure the Corporation’s payment obligations under the Reimbursement, Credit and Security Agreement dated October 1, 2009, as supplemented and amended, between the Corporation and PNC Bank, National Association (the “Bank”), pursuant to which a direct-pay letter of credit has been delivered by the Bank to secure the payment of principal of and interest on the Series 2004A Bonds, the Corporation, pursuant to the Master Indenture, will execute and deliver to the Bank the Direct Note Obligation, Series 2004A LOC (the “Series 2004A LOC Note” and, together with the Series 2014 Note and the Series 2004A Note, the “Initial Master Notes”).
As the holder of the Series 2004A LOC Note, the Bank is entitled to the same Master Indenture covenants and collateral as any other holder of Obligations. In addition, the Corporation has agreed in the 2004 Reimbursement Agreement to additional and/or more restrictive covenants in favor of the Bank, as described herein under the caption “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the 2004 Reimbursement Agreement” in APPENDIX C.
See “ANNUAL DEBT SERVICE REQUIREMENTS” herein for principal and interest requirements for the Series 2014 Bonds and the Series 2004A Bonds. Upon the issuance of the Series 2014 Bonds and the refunding of the Prior Bonds, the Obligated Group's only long-term indebtedness will consist of the Series 2014 Bonds and the Series 2004A Bonds.
Security for Obligations. Each Obligation will entitle the holder thereof to the protection of the covenants, restrictions and other obligations imposed upon the Obligated Group by the Master Indenture. The Obligated Group will be obligated on all Obligations, including the Initial Master Notes, which are issued pursuant to the Master Indenture. All Obligations issued by the Corporation and the other Members of the Obligated Group will be equally and ratably secured by (i) a mortgage on the real property on which the Existing Facilities are located and the fixtures thereon and (ii) a security interest in
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the Gross Revenues of the Obligated Group, subject in each case only to Permitted Encumbrances. See “SECURITY FOR THE SERIES 2014 NOTE – General.”
The Mortgage. Pursuant to an Open-End Mortgage, Assignment of Leases and Rents, Fixture Filing and Security Agreement dated as of December 1, 2014 (the “Mortgage”), the Corporation will grant the Master Trustee: (i) a first mortgage lien on the real property on which the Corporation's retirement community is located, and (ii) a security interest in the personal property and fixtures located on the real property on which the Corporation's retirement community is located (the “Mortgaged Property”), in each case subject to Permitted Encumbrances, as security for the payment of the Initial Master Notes and all other Obligations issued under the Master Indenture. No real or personal property of either Birchton or Home Care is mortgaged or pledged as security for Obligations issued under the Master Indenture.
Security Interest in Gross Revenues. Pursuant to the Master Indenture, each Member of the Obligated Group has granted a security interest (subject to Permitted Encumbrances) in its Gross Revenues as security for the payment of the Initial Master Notes and all other Obligations hereafter issued under the Master Indenture. See “SECURITY FOR THE SERIES 2014 BONDS” and “BONDHOLDERS' RISKS – Certain Matters Relating to Enforceability of the Master Indenture” herein.
Additional Obligations and Additional Indebtedness. The Master Indenture permits the Members of the Obligated Group to issue Additional Indebtedness (including Guaranties) which may, but need not, be evidenced or secured by an Additional Obligation issued under the Master Indenture. In certain circumstances, the Members of the Obligated Group may issue Additional Obligations under the Master Indenture to the Issuer or to persons other than the Issuer that will not be pledged under the Bond Indenture but will be equally and ratably secured with the Initial Master Notes. Under the terms of the Master Indenture, Additional Obligations may also be entitled to the benefit of security in addition to that securing the Obligations outstanding under the Master Indenture (including the Initial Master Notes). See “SECURITY FOR THE SERIES 2014 NOTE – Additional Indebtedness.” The Initial Master Notes and any Additional Obligations to be issued by the Members of the Obligated Group under the Master Indenture (whether or not pledged under the Bond Indenture or any Related Bond Indentures) are collectively referred to herein as the “Obligations.”
PLAN OF FINANCE
Series 2014 Bonds
The Corporation will use the proceeds from the sale of the Series 2014 Bonds, together with other available funds, to (i) refund and retire all of the outstanding principal amount of the Issuer's $19,820,000 County of Franklin, Ohio Adjustable Rate Demand Health Care Facilities Revenue Bonds, Series 2004B (Friendship Village of Dublin, Ohio, Inc. Project) (the “Prior Bonds”) (ii) finance, or reimburse the Corporation for, cost of the acquisition, construction, installation and equipping of the acquisition, construction, installation and equipping of certain independent living villas and routine capital expenditures for fiscal years 2014, 2015 and 2016 (the "Project"); and (iii) pay certain expenses incurred in connection with the issuance of the Series 2014 Bonds, all as permitted by the Act. A more detailed description of the use of the proceeds from the sale of the Series 2014 Bonds is included under the caption “ESTIMATED SOURCES AND USES OF FUNDS.”
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Refunding of Prior Bonds The Prior Bonds will be redeemed on a date that is within 30 days after the issuance date of the
Series 2014 Bonds. Upon the issuance of the Series 2014 Bonds, the collateral securing the Prior Bonds will be released.
Project Approximately $7,044,314 of proceeds of the Series 2014 Bonds will also be used to:
• reimburse the Corporation for the costs of (i) construction and equipping 12 independent living villas placed in service in 2013 and 2014, (ii) other capital expenditures made by the Corporation in fiscal year 2014 and (iii) architect fees (aggregating approximately $4,748,900); and
• finance (i) the construction and equipping of 4 independent living villas (the “2015 River Point Villas Project”), with construction expected to begin in late 2014 and (ii) future capital expenditures for fiscal years 2015 and 2016 (aggregating approximately $2,295,414).
The Obligated Group has recently developed a 5-year master plan (the "Master Plan"). In addition to the above-described Project, the projects being considered as part of such Master Plan include updating the Facility’s health center design to create more private rooms with larger rehabilitation space, increase in independent living and assisted living capacity, and development of an additional campus center and administrative areas, with a total cost of $40-$60 million. Such additional projects are expected to be financed with a combination of available Corporation funds, new entrance fee revenue derived from such additional projects currently projected by Corporation management to be $25-$30 million, additional borrowings and fundraising. After completion of the 2015 River Point Villas Project, the Corporation anticipates completion of the projects contemplated by the Master Plan over three phases. For additional information regarding the Project and the Obligated Group’s Master Plan, see “SELECTED UTILIZATION AND FINANCIAL INFORMATION - Future Plans –Borrower’s Master Plan” in APPENDIX A hereto.
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ESTIMATED SOURCES AND USES OF FUNDS
The proceeds of the Series 2014 Bonds, together with certain other available funds, are expected to be applied, net of investment earnings, as follows:
SOURCES OF FUNDS Series 2014 Bonds $23,315,000 Plus: Corporation Equity Contribution 77,837 Plus: Original Issue Premium 1,689,402 Total Sources of Funds $25,082,239 USES OF FUNDS Refunding Prior Bonds $17,460,000 Reimbursement to Corporation for Project Costs 4,748,900 Project Costs 2,295,414 Costs of Issuance(1) 577,925 Total Uses of Funds $25,082,239
_____________________ (1) Includes legal, accounting, administrative and miscellaneous fees and expenses and compensation to the Underwriter. Costs
of issuance in excess of 2% of the sale proceeds of the Series 2014 Bonds will be paid from the Corporation's equity contribution.
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ANNUAL DEBT SERVICE REQUIREMENTS The following table sets forth the amounts required for the payment of debt service on the Series
2014 Bonds and the Series 2004A Bonds, with principal paid at maturity or by mandatory sinking fund redemption. The following table excludes debt service on the Prior Bonds. Upon issuance of the Series 2014 Bonds, and the refunding of the Prior Bonds, the Obligated Group will have no other outstanding long-term indebtedness.
Totals: $23,315,000 $24,494,462 $8,938,607 $56,748,069 (1) Assumes an estimated interest rate of 4.158% per annum, which assumed interest rate takes into account current letter of credit fees, remarketing fees and the 2004A Swap.
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THE SERIES 2014 BONDS
General Description The Series 2014 Bonds are issuable only as fully registered bonds, registered in the name of Cede & Co., as nominee of The Depository Trust Company, New York, New York (“DTC”) and will be available to ultimate purchasers (“Beneficial Owners”) under the book-entry only system maintained by DTC, only through brokers and dealers who are, or act through, DTC Participants. Purchases by Beneficial Owners will be made in book-entry only form in denominations of $5,000 or any integral multiple thereof (“Authorized Denominations”). Beneficial Owners will not be entitled to receive physical delivery of the Series 2014 Bonds. So long as the Series 2014 Bonds are held in DTC’s book-entry only system, DTC (or a successor securities depository) or its nominee will be the registered owner of the Series 2014 Bonds for all purposes of the Bond Indenture, the Series 2014 Bonds and this Official Statement, and payments of principal, purchase price, if any, or redemption price and interest with respect to the Series 2014 Bonds will be made solely through the facilities of DTC. See “BOOK-ENTRY ONLY SYSTEM” below. Interest on the Series 2014 Bonds is payable on each May 15 and November 15, commencing May 15, 2015 (the "Interest Payment Dates"). So long as Cede & Co. is the registered owner of the Series 2014 Bonds, payments of principal or redemption price of and interest on the Series 2014 Bonds are required to be made to Beneficial Owners by DTC through its participants. The purchase price of any Series 2014 Bonds tendered or deemed tendered for purchase shall be payable by check or wire transfer of immediately available funds. The Record Date for the Series 2014 Bonds is the first day of each May and November, commencing May 1, 2015. Notwithstanding the foregoing, interest which is due and payable on any Interest Payment Date, but cannot be paid on such date from available funds under the Bond Indenture, shall thereupon cease to be payable to the registered owners otherwise entitled thereto as of such date. Such defaulted interest will be payable to the person in whose name such Series 2014 Bond is registered at the close of business on a special record date established by the Bond Trustee. The Bond Trustee shall mail a notice specifying the special payment date and special record date so established to each registered owner of the Series 2014 Bonds, such notice to be mailed at least 10 days prior to the special record date.
Redemption of the Series 2014 Bonds
Optional Redemption. The Series 2014 Bonds maturing on or before November 15, 2024 are not subject to optional redemption.
The Series 2014 Bonds maturing on or after November 15, 2025 are subject to redemption prior to maturity on or after November 15, 2024, in whole or in part on any date, at the option of the Issuer (at the direction of the Corporation), from funds deposited in the Bond Redemption Fund, from time to time, the maturities of such Series 2014 Bonds (and the sinking fund payments within a maturity) to be redeemed to be selected by the Corporation, with less than all of a single maturity or sinking fund payment of Series 2014 Bonds to be selected by lot in such manner as may be designated by the Bond Trustee, at a redemption price of 100% of the principal amount of Series 2014 Bonds to be redeemed, plus accrued interest to the date of redemption.
Mandatory Sinking Fund Redemption. The Series 2014 Bonds maturing on November 15, 2034 and November 15, 2044 are subject to mandatory sinking fund redemption at a redemption price
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equal to 100% of the principal amount thereof plus accrued interest to the redemption date from amounts on deposit in the Bond Fund on the redemption dates and in the principal amounts as follows:
The Series 2014 Bonds maturing November 15, 2034 and November 15, 2044 are referred to as the Series 2014 Term Bonds.
At its option, to be exercised on or before the 45th day next preceding any such mandatory redemption date, the Corporation, on behalf of the Issuer, may (i) deliver to the Bond Trustee for cancellation Series 2014 Term Bonds maturing on the same date as those scheduled to be retired in any aggregate principal amount desired, or (ii) receive a credit in respect of its mandatory redemption obligation for any such Series 2014 Term Bonds maturing on the same date as those scheduled to be retired which prior to said date have been purchased (in the open market) or redeemed (otherwise than through the operation of the sinking fund) and cancelled by the Bond Trustee and not theretofore applied as a credit against any mandatory redemption obligation. Each such Series 2014 Term Bond so delivered or previously purchased or redeemed shall be credited by the Bond Trustee at 100% of the principal amount thereof against the obligation of the Issuer on such mandatory redemption date and any excess shall be credited on future sinking fund redemption obligations with respect to Series 2014 Bonds maturing on the same date in such order as directed by the Corporation, and the principal amount of such Series 2014 Term Bonds to be redeemed by operation of the sinking fund shall be accordingly reduced.
The Corporation, on behalf of the Issuer, shall on or before the 45th day next preceding each mandatory redemption date furnish the Bond Trustee with its certificate indicating whether or not and to what extent the provisions of clauses (i) and (ii) of the preceding paragraph are to be availed of with
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respect to such mandatory redemption and confirm that such funds for the balance of the next succeeding prescribed mandatory redemption will be paid on or before October 1. The Bond Trustee shall redeem such an aggregate principal amount of such Series 2014 Term Bonds at 100% of the principal amount thereof plus accrued interest to the redemption date as will exhaust as nearly as practicable such credit.
Extraordinary Optional Redemption. Upon the occurrence of the events described in the following paragraph, and Net Proceeds and any additional funds of the Corporation are deposited in the Bond Redemption Fund pursuant to the provisions of the Sublease, such Net Proceeds or other funds, at the option of the Issuer (at the direction of the Corporation), shall be applied on the earliest possible date after receipt thereof to the redemption of the Series 2014 Bonds in whole on any date or in part on any Interest Payment Date, and if in part, in such order of maturity (and such order of mandatory sinking fund redemption payments within a maturity) as may be designated by the Corporation, at 100% of the principal amount thereof plus accrued interest to the redemption date and without premium. If the Series 2014 Note is to be prepaid in whole and all of the Series 2014 Bonds are to be redeemed, the Bond Trustee shall transfer all available moneys in all Funds and Accounts established under the Bond Indenture to the Bond Redemption Fund.
The extraordinary events described in the preceding paragraph consist of the following: (i) the Existing Facilities or any significant portion thereof shall have been damaged, destroyed or taken under the power of eminent domain by any governmental authority (a) to such extent that they cannot be reasonably expected to be restored within a period of six months, or (b) to such extent that it is reasonably expected that the Corporation will be thereby prevented from carrying on its normal operations therein or thereon for a period of six months, or (c) to such an extent that the cost of restoration thereof would exceed more than twenty percent of the appraised value of the Existing Facilities immediately prior to the date on which such damage or destruction occurred; or (ii) as a result of any changes in the Constitution of the State or the Constitution of the United States of America or of the legislative or administrative action (whether state or federal) or by final decree, judgment or order of any court or administrative body (whether state or federal) entered after the contest thereof by the Issuer or the Corporation in good faith, the Sublease shall have become void or unenforceable or impossible of performance in accordance with the intent and purpose of the parties as expressed in the Sublease, or if unreasonable burdens or excessive liabilities shall have been imposed upon the Issuer or the Corporation, with respect to the Existing Facilities or operation thereof, all as more fully described in the Sublease.
Purchase in Lieu of Redemption. In lieu of redeeming Series 2014 Bonds, the Bond Trustee may, at the request of the Corporation, use such funds otherwise available under the Bond Indenture for redemption of the Series 2014 Bonds to purchase such Series 2014 Bonds identified by the Corporation in the open market for cancellation at a price specified by the Corporation not exceeding the redemption price then applicable under the Bond Indenture. No purchase of any Series 2014 Bond in lieu of redemption will operate to extinguish the indebtedness evidenced by such Series 2014 Bond.
Notice of Redemption. Unless waived by a holder of Series 2014 Bonds to be redeemed and except as provided below, official notice of redemption shall be given by mailing a copy of an official redemption notice by first class mail to the Bondholder of the Series 2014 Bond to be redeemed, at the address of such holder shown on the bond register, not less than 30 days nor more than 60 days prior to the date fixed for redemption. Notice of the redemption of Series 2014 Bonds pursuant to the Bond Indenture will be given only if sufficient funds have been deposited with the Bond Trustee to pay the redemption price of the Series 2014 Bonds to be redeemed or if such notice states that the redemption is expressly conditioned upon the deposit of such money on or before the redemption date. All official notices of redemption shall be dated and shall state: (1) the redemption date, (2) the redemption price, (3) if less than all Outstanding Series 2014 Bonds are to be redeemed, the identification (and, in the case of partial redemption, the principal amounts) of the Series 2014 Bonds to be redeemed, (4) that on the
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redemption date the redemption price will become due and payable upon each such Series 2014 Bond or portion thereof called for redemption, and that interest thereon shall cease to accrue from and after said date, and (5) the place where such Series 2014 Bonds are to be surrendered for payment of the redemption price, which place of payment shall be in the designated office of the Bond Trustee.
BOOK-ENTRY ONLY SYSTEM
The Depository Trust Company (“DTC”), New York, NY, will act as the depository for the Series 2014 Bonds. The Series 2014 Bonds will be issued as fully-registered Bonds registered in the name of Cede & Co. (DTC’s partnership nominee) or such other name as may be requested by an authorized representative of DTC. The ownership of one fully-registered Series 2014 Bond for each maturity, each in the aggregate principal amount of such maturity, will be registered in the name of Cede & Co.
DTC, the world’s largest depository, is a limited-purpose trust company organized under the New York Banking Law, a “banking organization” within the meaning of the New York Banking Law, a member of the Federal Reserve System, a “clearing corporation” within the meaning of the New York Uniform Commercial Code, and a “clearing agency” registered pursuant to the provisions of Section 17A of the Securities Exchange Act of 1934. DTC holds and provides asset servicing for over 3.5 million issues of U.S. and non-U.S. equity issues, corporate and municipal debt issues, and money market instruments from over 100 countries that DTC’s participants (“Direct Participants”) deposit with DTC. DTC also facilitates the post-trade settlement among Direct Participants of sales and other securities transactions in deposited securities, through electronic computerized book-entry transfers and pledges between Direct Participants’ accounts. This eliminates the need for physical movement of securities certificates. Direct Participants include both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing Corporation (“DTCC”). DTCC is the holding company for DTC, National Securities Clearing Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies. DTC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and clearing corporations that clear through or maintain a custodial relationship with a Direct Participant, either directly or indirectly (“Indirect Participants”). DTC has a Standard and Poor’s rating of AA+. The DTC Rules applicable to its Participants are on file with the Securities and Exchange Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.
Purchases of the Series 2014 Bonds under the DTC system must be made by or through Direct Participants, which will receive a credit for the Series 2014 Bonds on DTC’s records. The ownership interest of each actual purchaser of each Series 2014 Bond (“Beneficial Owner” and collectively, the “Beneficial Owners”) is in turn to be recorded on the Direct and Indirect Participants’ records. Beneficial Owners will not receive written confirmation from DTC of their purchase. Beneficial Owners are, however, expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the Direct or Indirect Participant through which the Beneficial Owner entered into the transaction. Transfers of ownership interests in the Series 2014 Bonds are to be accomplished by entries made on the books of Direct or Indirect Participants acting on behalf of Beneficial Owners. Beneficial Owners will not receive certificates representing their ownership interests in the Series 2014 Bonds, except in the event that use of the book-entry system for the Series 2014 Bonds is discontinued.
To facilitate subsequent transfers, all Series 2014 Bonds deposited by Direct Participants with DTC are registered in the name of DTC’s partnership nominee, Cede & Co., or such other name as may be requested by an authorized representative of DTC. The deposit of Series 2014 Bonds with DTC and
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their registration in the name of Cede & Co. or such other DTC nominee do not effect any change in beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Series 2014 Bonds; DTC’s records reflect only the identity of the Direct Participants to whose accounts such Series 2014 Bonds are credited, which may or may not be the Beneficial Owners. The Direct and Indirect Participants will remain responsible for keeping account of their holdings on behalf of their customers.
Conveyance of notices and other communications by DTC to Direct Participants, by Direct Participants to Indirect Participants, and by Direct Participants and Indirect Participants to Beneficial Owners will be governed by arrangements among them, subject to any statutory and regulatory requirements as may be in effect from time to time. Beneficial Owners may desire to make arrangements with a Direct Participant or Indirect Participant so that all notices of redemption or other communications to DTC which affect such Beneficial Owners will be forwarded in writing by such Direct Participant or Indirect Participant. If less than all of the Series 2014 Bonds are being redeemed, DTC’s practice is to determine by lot the amount of the interest of each Direct Participant to be redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to the Series 2014 Bonds unless authorized by a Direct Participant in accordance with DTC’s Money Market Instruments (“MMI”) Procedures. Under its usual procedures, DTC mails an “Omnibus Proxy” to the Issuer as soon as possible after the Record Date. The “Omnibus Proxy” assigns Cede & Co.’s consenting or voting rights to those Direct Participants to whose accounts the Series 2014 Bonds are credited on the Record Date (identified in a listing attached to the “Omnibus Proxy”).
Principal and interest payments on the Series 2014 Bonds will be made to Cede & Co., or such other nominee as may be requested by an authorized representative of DTC. DTC’s practice is to credit Direct Participants’ accounts upon DTC’s receipt of funds and corresponding detail information from the Bond Trustee or the Issuer, on payable date in accordance with their respective holdings shown on DTC’s records. Payments by Participants to Beneficial Owners will be governed by standing instructions and customary practices, as in the case with securities held for the accounts of customers in bearer form or registered in “street name,” and will be the responsibility of such Participant and not of DTC, the Bond Trustee or the Issuer, subject to any statutory or regulatory requirements as may be in effect from time to time. Payment of principal and interest to Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is the responsibility of the Bond Trustee or the Issuer. Disbursement of such payments to Direct Participants will be the responsibility of DTC, and disbursement of such payments to the Beneficial Owners will be the responsibility of Direct and Indirect Participants.
DTC may discontinue providing its services as depository with respect to the Series 2014 Bonds at any time by giving reasonable notice to the Issuer and the Bond Trustee. Under such circumstances, in the event that a successor securities depository is not obtained, Series 2014 Bond certificates are required to be printed and delivered.
The Issuer may decide to discontinue use of the system of book-entry transfers through DTC (or a successor depository with respect to the Series 2014 Bonds). In that event, Series 2014 Bond certificates will be printed and delivered as described.
THE INFORMATION PROVIDED ABOVE HAS BEEN PROVIDED BY DTC. NO REPRESENTATION IS MADE BY THE ISSUER, THE OBLIGATED GROUP OR THE UNDERWRITER AS TO THE ACCURACY OR ADEQUACY OF SUCH INFORMATION PROVIDED BY DTC OR AS TO THE ABSENCE OF MATERIAL ADVERSE CHANGES IN SUCH INFORMATION SUBSEQUENT TO THE DATE HEREOF.
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For so long as the Series 2014 Bonds are registered in the name of DTC or its nominee, Cede & Co., the Issuer and the Bond Trustee will recognize only DTC or its nominee, Cede & Co., as the registered owner of the Series 2014 Bonds for all purposes, including payments, notices and voting.
Under the Bond Indenture, payments made by the Bond Trustee to DTC or its nominee will satisfy the Issuer’s obligations under the Bond Indenture and the Corporation’s obligations under the Sublease, to the extent of the payments so made.
None of the Issuer, the Underwriter, the Obligated Group nor the Bond Trustee will have any responsibility or obligation with respect to (i) the accuracy of the records of DTC, its nominee or any Direct Participant or Indirect Participant with respect to any beneficial ownership interest in any Series 2014 Bond, (ii) the delivery to any Direct Participant or Indirect Participant or any other Person, other than an owner, as shown in the Note Register, of any notice with respect to any Series 2014 Bonds including, without limitation, any notice of redemption, tender, purchase or any event which would or could give rise to a tender or purchase right or option with respect to any Series 2014 Bond, (iii) the payment of any Direct Participant or Indirect Participant or any other Person, other than an owner, as shown in the Bond Register, of any amount with respect to the principal of, premium, if any, or interest on, or the purchase price of, any Series 2014 Bonds or (iv) any consent given by DTC as registered owner.
Prior to any discontinuation of the book-entry only system described above, the Issuer and the Bond Trustee may treat DTC as, and deem DTC to be, the absolute owner of the Series 2014 Bonds for all purposes whatsoever, including, without limitation, (i) the payment of principal of, premium, if any, and interest on the Series 2014 Bonds, (ii) giving notices of redemption and other matters with respect to the Series 2014 Bonds, (iii) registering transfers with respect to the Series 2014 Bonds and (iv) the selection of Series 2014 Bonds for redemption.
SECURITY FOR THE SERIES 2014 NOTE
General
The Corporation’s obligations under the Sublease will be secured by the Series 2014 Note, which will be issued and secured under the Master Indenture. The Series 2014 Note will entitle the Bond Trustee, as the holder of the Series 2014 Note, to the protection and benefit of the covenants, restrictions and other obligations imposed on the Obligated Group by the Master Indenture.
The Master Indenture provides that payments on the Initial Master Notes and any Additional Obligations issued under the Master Indenture will be the obligations of the Members of the Obligated Group. The accounts of the Members of the Obligated Group will be combined for financial reporting purposes and will be used in determining whether various covenants and tests contained in the Master Indenture (including tests relating to the issuance of Additional Indebtedness) are satisfied. See “BONDHOLDERS' RISKS – Certain Matters Relating to Enforceability of the Master Indenture.”
The Mortgage
The Obligations, including the Initial Master Notes, will be secured by a mortgage on certain real property of the Corporation and all buildings, structures, improvements and appurtenances standing or thereafter placed upon such real estate, and a security interest in all machinery, equipment, furniture and spare parts on such real estate, all judgments, awards of damages, settlements and other compensation heretofore or hereafter made resulting from condemnation proceeds or the taking of the real estate subject to the Mortgage, and any and all other property of every kind and nature owned by the Corporation
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conveyed, pledged, assigned or transferred as additional security to the Master Trustee (collectively, the “Mortgaged Property”), subject only to Permitted Encumbrances. The Mortgaged Property includes the portions of the real property on which the Corporation's Facility is located. For a summary of certain provisions of the Mortgage, see “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Mortgage” in APPENDIX C. No real or personal property of either Birchton or Home Care is mortgaged or pledged as security for Obligations issued under the Master Indenture.
The Corporation will deliver a mortgagee title insurance policy for the Mortgaged Property on the date of issuance of the Series 2014 Bonds, with the Master Trustee being the named insured. The title policy will be for an amount of $21,090,600, which is less than the initial aggregate principal amount of the Initial Master Notes. Any proceeds from a claim under the title policy would be disbursed to the Master Trustee for the benefit of the holders of all outstanding Obligations, including but not limited to the Initial Master Notes. Because the amount of the title policy is less than the aggregate principal amount of the Initial Master Notes, in the event of a claim under the title policy, any proceeds from a claim would be applied on a ratable basis pursuant to the terms of the Master Indenture. There is no requirement in the Master Indenture or the Sublease for additional mortgage title insurance to be obtained in connection with the incurrence by the Obligated Group of any Additional Indebtedness secured by Obligations issued under the Master Indenture.
Security Interest in Gross Revenues
The Obligations, including the Initial Master Notes, will also be secured by a security interest in the Gross Revenues of the Obligated Group, subject only to Permitted Encumbrances. “Gross Revenues” means all receipts, revenues, rentals, income, insurance proceeds (including, without limitation, all Medicaid, Medicare and other third-party payments), condemnation awards, Entrance Fees and other moneys received by or on behalf of any Obligated Group Member, including (without limitation) revenues derived from (a) the ownership, operation or leasing of any portion of the Facilities (including, without limitation, fees payable by or on behalf of residents of the Facilities) and all rights to receive the same (other than the right to receive Medicaid and Medicare payments), whether in the form of accounts, general intangibles or other rights, and the proceeds of such accounts, general intangibles and other rights, whether now existing or hereafter coming into existence or whether now owned or held or hereafter acquired, and (b) gifts, grants, bequests, donations and contributions heretofore or hereafter made that are legally available to meet any of the obligations of the Obligated Group Member incurred in the financing, operation, maintenance or repair of any portion of the Facilities; provided, however, that there shall be excluded from Gross Revenues (i) any amounts received by an Obligated Group Member as a billing agent for another entity, except for fees received for serving as billing agent, (ii) gifts, grants, bequests, donations and contributions to an Obligated Group Member heretofore or hereafter made, and the income and gains derived therefrom, which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use for payments required under this Master Indenture, (iii) any moneys received by any Obligated Group Member from prospective residents or commercial tenants in order to pay for customized improvements to independent living units or other areas of the Facilities to be occupied or leased to such residents or tenants, (iv) payments or deposits under a Residency Agreement that by its terms or applicable law are required to be held in escrow or trust for the benefit of a resident until the conditions for the release of such payment or deposit have been satisfied, and (v) all deposits and/or advance payments made in connection with any residency of independent living units or other areas of the Facilities to be occupied by residents or tenants and received prior to receipt of such certificate and licenses for occupancy of such units.
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Additional Indebtedness
The Master Indenture permits the Obligated Group to incur Additional Indebtedness (including Guaranties) which may, but need not, be evidenced or secured by an Additional Obligation issued under the Master Indenture. Under certain conditions specified therein, the Master Indenture will permit the Obligated Group to issue Additional Obligations that will not be pledged under the Bond Indenture, but will be equally and ratably secured by the Master Indenture with the Initial Master Notes. In addition, the Master Indenture will permit such Additional Obligations to be secured by security including Liens on the Property of the Obligated Group, which additional security or Liens need not be extended to secure any other Obligations (including the Series 2014 Note). See “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Liens on Property” and “– Permitted Additional Indebtedness” in APPENDIX C.
In determining compliance with a number of provisions of the Master Indenture, including the provisions governing the incurrence of Additional Indebtedness, the Obligated Group may assume that certain types of Indebtedness which bear interest at varying rates and which may not be payable over an extended term will bear interest over time at interest rates approximating current or recent long term fixed rates, will remain outstanding for a long term and will be amortized on a level debt service basis. The actual interest rates and payments on such Indebtedness may vary from such assumptions, and such variance may be material. See “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Calculation of Debt Service and Debt Service Coverage” in APPENDIX C.
Certain Covenants of the Obligated Group
For the definitions of certain words and terms used in this section, see “SUMMARY OF PRINCIPAL DOCUMENTS” in APPENDIX C.
Rates and Charges. The Members covenant and agree that the Obligated Group Agent will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year, commencing with the Fiscal Year ending on June 30, 2015 and to deliver a copy of such calculation to the Required Information Recipients.
If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.20:1, the Master Trustee shall require the Obligated Group, at the Obligated Group’s expense, to select a Consultant within 30 days following the calculation described in the preceding paragraph to make recommendations with respect to the rates, fees and charges of the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase such Historical Debt Service Coverage Ratio to at least 1.20:1 for the following Fiscal Year.
For specific information regarding the process under the Master Indenture for selection of Consultants, see “Approval of Consultants” below and “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Approval of Consultants” in APPENDIX C hereto.
A copy of the Consultant’s report and recommendations, if any, shall be filed with each Member, the Master Trustee and each Required Information Recipient within 60 days of retaining the Consultant. Each Member shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member) and permitted by law. This provision of the Master Indenture shall not be construed to prohibit any Member from serving indigent residents to the extent required for such Member to continue its qualification as a Tax-Exempt Organization or from serving any other class or classes of residents without charge or at reduced rates so
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long as such service does not prevent the Obligated Group from satisfying the other requirements of the Master Indenture summarized in this section.
The foregoing provisions notwithstanding, if the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the level required above, the Master Trustee shall not be obligated to require the Obligated Group to retain a Consultant to make such recommendations if: (a) there is filed with the Master Trustee (who shall provide a copy to each Required Information Recipient) a written report addressed to them of a Consultant (which Consultant and report, including without limitation the scope, form, substance and other aspects of such report, are not objected to by the Master Trustee) which contains an opinion of such Consultant that applicable laws or regulations have prevented the Obligated Group from generating Income Available for Debt Service during such Fiscal Year sufficient to meet the requirements of the Master Indenture summarized above, and, if requested by the Master Trustee, such report is accompanied by a concurring opinion of Independent Counsel (which Counsel and opinion, including without limitation the scope, form, substance and other aspects thereof, are not objected to by the Master Trustee) as to any conclusions of law supporting the opinion of such Consultant; (b) the report of such Consultant indicates that the rates charged by the Obligated Group are such that, in the opinion of the Consultant, the Obligated Group has generated the maximum amount of Revenues reasonably practicable given such laws or regulations; and (c) the Historical Debt Service Coverage Ratio of the Obligated Group for such Fiscal Year was at least 1.00:1. The Obligated Group shall not be required to cause the Consultant’s report referred to in the preceding sentence to be prepared more frequently than once every two Fiscal Years if at the end of the first of such two Fiscal Years the Obligated Group provides to the Master Trustee (who shall provide a copy to each Related Bond Trustee) an opinion of Independent Counsel (which Counsel and opinion, including without limitation the scope, form, substance and other aspects thereof, are not objected to by the Master Trustee) to the effect that the applicable laws and regulations underlying the Consultant’s report delivered in respect of the previous Fiscal Year have not changed in any material way.
If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the levels required by the Master Indenture and summarized above, no event of default relating to such failure may be declared under the Master Indenture unless (i) the Obligated Group fails to take all necessary action to comply with the procedures set forth in the Master Indenture and described above if the Historical Debt Service Coverage Ratio is less than 1.20:1 for any Fiscal Year; or (ii) the Historical Debt Service Coverage Ratio is less than 1.00:1 and the Days Cash on Hand is less than the Liquidity Requirement as of a Testing Date; or (iii) the Historical Debt Service Coverage Ratio is less than 1.00:1 for any two consecutive Fiscal Years.
For specific information regarding the process under the Master Indenture for selection of Consultants, see “Approval of Consultants” below and APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Approval of Consultants.”
Also see APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Rates and Charges.”
Liquidity Covenant. The Obligated Group covenants that it will calculate the Days Cash on Hand of the Obligated Group as of each Testing Date, commencing June 30, 2015. The Obligated Group shall include such calculation as of each June 30, in the Officer’s Certificate delivered to the Required Information Recipients.
Each Obligated Group Member is required to conduct its business so that on each Testing Date the Obligated Group shall have no less than 120 Days Cash on Hand (the “Liquidity Requirement”). If the
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amount of Days Cash on Hand as of any Testing Date is less than the Liquidity Requirement, the Obligated Group Agent shall, within 30 days after delivery of the Officer’s Certificate disclosing such deficiency, deliver an Officer’s Certificate approved by a resolution of the Governing Body of the Obligated Group Agent to the Master Trustee setting forth in reasonable detail the reasons for such deficiency and adopting a specific plan setting forth steps to be taken designed to raise the level of the Days Cash on Hand to the Liquidity Requirement for future periods.
If the Obligated Group has not raised the level of the Days Cash on Hand to the Liquidity Requirement by the Testing Date immediately subsequent to the delivery of the Officer’s Certificate required in the preceding paragraph, the Obligated Group Agent shall, within 30 days after delivery of the Officer’s Certificate disclosing such deficiency, select a Consultant to make recommendations with respect to the rates, fees and charges of the Obligated Group and the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase the Days Cash on Hand to the Liquidity Requirement for future periods. A copy of the Consultant’s report and recommendations, if any, shall be filed with each Member, the Master Trustee and each Required Information Recipient within 60 days after the date such Consultant is retained. Each Member of the Obligated Group shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Member) and permitted by law.
Notwithstanding any other provision of the Master Indenture, failure of the Obligated Group to achieve the Liquidity Requirement for any Testing Date shall not constitute an event of default under the Master Indenture if the Obligated Group takes all action necessary to comply with the procedures set forth above for adopting a plan or retaining a Consultant and follows each recommendation contained in such plan or Consultant’s report to the extent feasible (as determined by the Governing Body of the Obligated Group Agent) and permitted by law.
For specific information regarding the process under the Master Indenture for selection of Consultants, see “Approval of Consultants” below and APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Approval of Consultants.”
Also see APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Liquidity Covenant.”
Approval of Consultants. The Master Indenture provides that if at any time the Members of the Obligated Group are required to engage a Consultant under the provisions of the Master Indenture summarized under “Rates and Charges” and "Liquidity Covenant" described above or SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Lock-Box Provisions” in APPENDIX C such Consultant shall be engaged in the manner set forth below in this section.
Upon selecting a Consultant as required under the provisions of the Master Indenture, the Obligated Group Agent will notify the Master Trustee of such selection. The Master Trustee shall, as soon as practicable but in no case longer than five Business Days after receipt of notice, notify the holders of all Obligations Outstanding under the Master Indenture of such selection. Such notice shall (i) include the name of the Consultant and a brief description of the Consultant, (ii) state the reason that the Consultant is being engaged including a description of the covenant(s) of the Master Indenture that require the Consultant to be engaged and (iii) state that the holder of the Obligation will be deemed to have consented to the selection of the Consultant named in such notice unless such Obligation holder submits an objection to the selected Consultant in writing (in a manner acceptable to the Master Trustee) to the Master Trustee within 15 days of the date that the notice is sent to the Obligation holders. No later
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than two Business Days after the end of the 15-day objection period, the Master Trustee shall notify the Obligated Group of the number of objections. If more than two-thirds in aggregate principal amount of the holders of the outstanding Obligations have been deemed to have consented to the selection of the Consultant, the Obligated Group Agent may engage the Consultant. If more than one-third in aggregate principal amount of the owners of the Obligations outstanding have objected to the Consultant selected, the Obligated Group Agent shall select another Consultant which may be engaged upon compliance with the procedures as described above.
When the Master Trustee notifies the holders of Obligations of such selection, the Master Trustee will also request any Related Bond Trustee send a notice containing the information required by the provisions of the Master Indenture summarized above to the owners of all of the Outstanding Related Bonds. Such Related Bond Trustee shall, as the owner of an Obligation securing such Related Bonds, consent or object to the selection of the Consultant in accordance with the response of the owners of such Related Bonds. If more than two-thirds in aggregate principal amount of the Related Bonds have been deemed to have consented to the selection of the Consultant, the Bond Trustee shall approve the Consultant. If more than one-third in aggregate principal amount of the owners of the Related Bonds have objected to the Consultant selected, the Bond Trustee shall not approve the Consultant.
The 15-day notice period described above may be extended by the Master Trustee in order to permit each Related Bond Trustee to give the owners of the Related Bonds 15 days to respond to the notice given by the Related Bond Trustee. By acceptance of an Obligation securing any Related Bonds, the Related Bond Trustee agrees to comply with the provisions of the Master Indenture summarized under this heading.
The Master Indenture further provides that all Consultant reports required thereunder shall be prepared in accordance with then-effective industry-appropriate standards.
For further information about the approval of consultants, see APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Approval of Consultants.”
Disposition of Property. The Obligated Group agrees in the Master Indenture to restrictions on the disposition of its Property, as more fully described under the caption APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of the Master Indenture – Sale, Lease or Other Disposition of Property” hereto.
Rights of Holders of Accelerable Instruments Under Master Indenture
Under the Master Indenture, an Obligation may be issued as an "Accelerable Instrument", which is defined in the Master Indenture to be "any Obligation or any mortgage, indenture, lease or other instrument under which there has been issued or incurred, or by which there is secured, any Indebtedness evidenced by an Obligation, which Obligation or instrument provides that, upon the occurrence of an event of default under such Obligation or instrument, the holder thereof may request that the Master Trustee declare such Obligation or Indebtedness due and payable prior to the date on which it would otherwise become due and payable; provided that an Accelerable Instrument must have an original principal amount of at least $5,000,000".
Under the Master Indenture, if an event of default has occurred and is continuing, the Master Trustee shall, if requested by the holder of any Accelerable Instrument under which Accelerable Instrument an event of default exists, shall, by notice in writing delivered to the Obligated Group Agent, declare the entire principal amount of all Obligations then Outstanding and the interest accrued thereon immediately due and payable. However, such acceleration of all Obligations then Outstanding can be
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rescinded by the holders of a majority in aggregate principal amount of the Obligations then Outstanding. Unless such a rescission occurs, though, a holder of a minority in aggregate principal amount of the Obligations then Outstanding has the ability to cause the acceleration of all Obligations then Outstanding, including the Series 2014 Note.
The Series 2014 Note is an Accelerable Instrument. Neither the Series 2004A Note nor the Series 2004A LOC Note is an Accelerable Instrument. There are no restrictions in the Master Indenture on the ability of the Members of the Obligated Group to issue one or more Obligations as Accelerable Instruments in the future.
Additional Covenants for the Benefit of the Bank
As the holder of the Series 2004A LOC Note, the Bank is entitled to the same Master Indenture covenants and collateral as any other holder of Obligations. In addition, the Corporation has agreed in the 2004 Reimbursement Agreement to additional and/or more restrictive covenants in favor of the Bank, as described herein under the caption “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the 2004 Reimbursement Agreement” in APPENDIX C. Cross Default
THE FAILURE BY THE OBLIGATED GROUP TO OBSERVE OR PERFORM THE ABOVE COVENANTS OR ANY OTHER COVENANTS CONTAINED IN THE 2004 REIMBURSEMENT AGREEMENT AFTER ANY APPLICABLE CURE PERIOD SHALL CONSTITUTE AN EVENT OF DEFAULT UNDER TO THE 2004 REIMBURSEMENT AGREEMENT. AN EVENT OF DEFAULT UNDER TO THE 2004 REIMBURSEMENT AGREEMENTS MAY, IN SOME CIRCUMSTANCES, TRIGGER AN EVENT OF DEFAULT UNDER THE SERIES 2004A LOC NOTE SECURING THE 2004 REIMBURSEMENT AGREEMENT AND THE MASTER INDENTURE. See APPENDIX C – “SUMMARY OF CERTAIN DOCUMENTS – Summary of the Master Indenture” for a discussion of remedies in the event of an Event of Default under the Master Indenture, and APPENDIX C - “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the 2004 Reimbursement Agreement” for a discussion of remedies in the event of an event of default under the 2004 Reimbursement Agreement.
SECURITY FOR THE SERIES 2014 BONDS
Special and Limited Obligations of the Issuer
NEITHER THE PRINCIPAL OF THE SERIES 2014 BONDS NOR THE INTEREST ACCRUING THEREON SHALL EVER CONSTITUTE A GENERAL INDEBTEDNESS OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF WITHIN THE MEANING OF ANY CONSTITUTIONAL OR STATUTORY PROVISION WHATSOEVER OR SHALL EVER CONSTITUTE OR GIVE RISE TO A PECUNIARY LIABILITY OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF, NOR WILL THE SERIES 2014 BONDS BE, OR BE DEEMED TO BE, AN OBLIGATION OF THE ISSUER, THE COUNTY OF FRANKLIN, THE STATE OF OHIO OR ANY POLITICAL SUBDIVISION THEREOF.
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Lease and Sublease
The Corporation will lease its Existing Facilities to the Issuer pursuant to the Lease. The Issuer and the Corporation will also enter into the Sublease, whereby the Issuer will make the proceeds of the Series 2014 Bonds available to the Corporation, and the Corporation will agree to make rental payments sufficient to pay in full when due all principal of, and redemption premium, if any, and interest on the Series 2014 Bonds. The Sublease will provide that the Corporation shall make designated payments to the Bond Trustee in amounts sufficient to pay the principal of, premium, if any, and interest on the Series 2014 Bonds when due. The Obligated Group's obligation to make payments on the Series 2014 Note shall be satisfied to the extent payments are made by the Corporation under the Sublease. The Sublease will also impose certain restrictions on the actions of the Corporation for the benefit of the Issuer and the owners of the Series 2014 Bonds. The Issuer’s rights and interest in the Sublease (other than the right to collect payments of Basic Rent, which right is assigned to the Bond Trustee) will be assigned to the Master Trustee pursuant to the Assignment. See “SECURITY FOR THE SERIES 2014 NOTE – General” herein.
Bond Indenture Under the Bond Indenture, the Issuer will pledge and assign to the Bond Trustee as security for
the payment of principal of, premium, if any, and interest on the Series 2014 Bonds, all of its right, title and interest in and to (i) payments of Basic Rent under the Sublease and, subject to the Assignment, rights and remedies available therein to collect the Basic Rent, (ii) all moneys and securities held by the Bond Trustee under the Bond Indenture and (iii) any and all other property of every kind and nature from time to time pledged as additional security under the Bond Indenture (collectively, the “Trust Estate”).
The Series 2014 Bonds will be special and limited obligations of the Issuer and will be payable solely from (i) payments or prepayments on the Series 2014 Note; (ii) payments or prepayments made under the Sublease (other than payments with respect to Unassigned Rights); (iii) moneys and investments held by the Bond Trustee under, and to the extent provided in the Bond Indenture; and (iv) in certain circumstances, proceeds from insurance and condemnation awards or proceeds of sales made under the threat of condemnation. Certain investment earnings on moneys held by the Bond Trustee may be transferred to a Rebate Fund established pursuant to a Tax Exemption Certificate and Agreement. Amounts held in such Rebate Fund will not be part of the Trust Estate, and consequently will not be available to make payments on the Series 2014 Bonds.
Debt Service Reserve Fund
Pursuant to the Bond Indenture, the Debt Service Reserve Fund shall be established with the Bond Trustee to secure the Series 2014 Bonds. The Debt Service Reserve Fund will not be funded on the date of issuance of the Series 2014 Bonds. If and when funded, the Debt Service Reserve Fund shall secure only the Series 2014 Bonds, and will not secure the Series 2004A Bonds or any other indebtedness of the Obligated Group.
So long as the Obligated Group maintains Days Cash on Hand of at least 600 as of each June 30 of each Fiscal Year (each such date being a “Testing Date”), commencing June 30, 2015, as calculated pursuant to the Master Indenture, the Debt Service Reserve Fund shall not be required to be funded. In the event that the Days Cash on Hand of the Obligated Group is less than 600 as of any Testing Date, the Corporation shall deliver to the Bond Trustee an amount of cash or Qualified Investments equal to the Debt Service Reserve Fund Requirement for deposit into the Debt Service Reserve Fund established in the Bond Indenture. Upon funding of the Debt Service Reserve Fund, in the event that amounts on deposit in the Principal Account and Interest Account or the Bond Redemption Fund are insufficient to
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make payments of principal of, redemption (if any), and interest on the Series 2014 Bonds when due, or upon acceleration of the Series 2014 Bonds pursuant to the Bond Indenture, the Bond Trustee shall withdraw funds from the Debt Service Reserve Fund. Any amounts so transferred to the Bond Trustee shall be used solely to pay the principal of, premium, if any, and interest on the Series 2014 Bonds.
"Debt Service Reserve Fund Requirement" means, as of any particular date the Debt Service Reserve Fund is required to be funded as described above, the least of (a) the Maximum Annual Debt Service Requirement (as defined in the Master Indenture) with respect to all Outstanding Series 2014 Bonds, (b) one hundred twenty-five percent (125%) of average annual debt service on all Outstanding Series 2014 Bonds, and (c) an amount equal to ten percent (10%) of the principal amount of Outstanding Series 2014 Bonds at the time of such calculation. The Debt Service Reserve Fund Requirement will be recalculated from time to time to take into account the payment of principal on the Series 2014 Bonds.
If required pursuant to the above paragraph, the Corporation shall deposit funds into the Debt Service Reserve Fund in an amount equal to the Debt Service Reserve Fund Requirement no later than ninety (90) days after the earlier of (i) the date on which the Corporation delivers its Officer's Certificate, as Obligated Group Agent, pursuant to Section 414 of the Master Indenture, showing the Days Cash on Hand calculation, or (ii) the date by which the Corporation is required to furnish such Officer's Certificate pursuant to Section 414 of the Master Indenture.
Once the Debt Service Reserve Fund has been funded, moneys in the Debt Service Reserve Fund shall be maintained in an amount not less than 90% of the Debt Service Reserve Fund Requirement. If on any Valuation Date, the amount on deposit in the Debt Service Reserve Fund is less than 90% of the Debt Service Reserve Fund Requirement as a result of a decline in the market value of investments on deposit in the Debt Service Reserve Fund, the Bond Trustee shall notify the Corporation of such deficiency. The Corporation agrees to deposit in the Debt Service Reserve Fund the amount necessary to restore the amount on deposit in the Debt Service Reserve Fund to 100% of the Debt Service Reserve Fund Requirement within not more than 150 days following the date on which the Corporation receives notice of such deficiency.
If on any date, the amount on deposit in the Debt Service Reserve Fund is less than 100% of the Debt Service Reserve Fund Requirement as a result of the Debt Service Reserve Fund having been drawn upon, the Corporation agrees to restore the amount on deposit in the Debt Service Reserve Fund to an amount equal to 100% of the Debt Service Reserve Fund Requirement in not more than 12 substantially equal monthly installments beginning with the first day of the seventh month after the month in which such draw occurred.
If, on any Valuation Date, the money held in the Debt Service Reserve Fund exceeds the Debt Service Reserve Fund Requirement, including any excess created in whole or in part by the interest earnings on such fund, an amount equal to such excess shall be transferred by the Bond Trustee in the order listed to the Interest Account until such account contains therein an amount equal to the interest due on such Series 2014 Bonds and then to the Principal Account.
After funding of the Debt Service Reserve Fund, so long as no event of default has occurred and is continuing hereunder, if the Obligated Group later has Days Cash on Hand of at least 900 as of a Testing Date, all funds in the Debt Service Reserve Fund shall be returned to the Corporation. After the Corporation has provided an Officer’s Certificate to the Bond Trustee confirming such level of Days Cash on Hand, the Bond Trustee shall return any funds in the Debt Service Reserve Fund to the Corporation as soon as practicable.
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See also “SECURITY FOR THE SERIES 2014 NOTE” for information about additional security for the Series 2014 Bonds.
THE ISSUER
The Series 2014 Bonds are authorized and issued by the Issuer under the provisions of the Constitution and statutes of the State of Ohio, particularly the Act, and pursuant to a resolution adopted by the Hospital Commission on October 29, 2014.
The Hospital Commission was created in 1955, pursuant to Section 339.14 of the Ohio Revised Code, for the purpose, among other things, of assisting in the construction of hospital facilities within the jurisdiction of the Issuer. By virtue of the authority of the Constitution and the laws of the State of Ohio, and particularly the Act, the Issuer is authorized to issue bonds, to use the proceeds of such bonds to finance and refinance the acquisition, construction and installation of hospital facilities, which hospital facilities will be available for the service of the general public without discrimination by reason of race, creed, color or national origin, and to refund bonds issued for such purpose.
The Series 2014 Bonds are special obligations of the Issuer that are not general obligations, debt or bonded indebtedness of the Issuer or the State of Ohio or any political subdivision thereof, and no Bondholder has the right to have excises or taxes levied by the Issuer or by the State of Ohio or any political subdivision thereof for the payment of the principal, interest and premium, if any, on the Series 2014 Bonds. The right of the Bondholders to receive payment of principal, interest and premium, if any, on the Series 2014 Bonds is limited to the amounts paid by the Obligated Group and any future members of the Obligated Group and the funds pledged therefor under the Bond Indenture.
BONDHOLDERS' RISKS
Set forth below are certain risk factors which should be considered before any investment in the Series 2014 Bonds is made. These risk factors are not, and should not be considered, definitive or exhaustive.
Cautionary Statements Regarding Forward-Looking Statements in this Official Statement
When used in this Official Statement and in any continuing disclosure by any Obligated Group Member, in any Obligated Group Member's periodic public investor calls, press releases and in oral statements made with the approval of an authorized executive officer of any Obligated Group Member, the words or phrases "will likely result," "are expected to," "will continue," "is anticipated," "estimate," "project," or similar expressions are intended to identify "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those presently anticipated or projected. The Obligated Group cautions readers not to place undue reliance on any such forward-looking statements. The Obligated Group advises readers that certain factors could affect the financial performance of the Obligated Group and could cause the actual results of the Obligated Group for future periods to differ materially from any opinions or statements expressed with respect to future periods in any current statements.
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General
As described herein under the caption “SECURITY FOR THE SERIES 2014 BONDS,” the principal of, premium, if any, purchase price of, and interest on the Series 2014 Bonds, except to the extent that the Series 2014 Bonds will be payable from the proceeds thereof or investment income thereon or, under certain circumstances, proceeds of insurance, sale or condemnation awards or net amounts by recourse to the Mortgage, are payable solely from amounts payable by the Corporation under the Sublease or the Members of the Obligated Group under the Master Indenture. No representation or assurance is given or can be made that revenues will be realized by the Obligated Group in amounts sufficient to pay debt service on the Series 2014 Bonds when due and other payments necessary to meet the obligations of the Obligated Group. The Series 2014 Bondholders’ risks discussed below should be considered in evaluating the ability of the Obligated Group to make payments in amounts sufficient to provide for the payment of the principal of, the premium, if any, and interest on the Series 2014 Bonds.
The net revenues of the Obligated Group will be subject to, among other factors, federal and state policies affecting the senior housing and health care industries (including changes in reimbursement rates and policies), increased competition from other senior housing and health care providers, the capability of the management of the Obligated Group and future economic and other conditions that are impossible to predict. The extent of the ability of the Obligated Group to generate future revenues has a direct effect upon the payment of the principal of, premium, if any, and interest on the Series 2014 Bonds. Neither the Underwriter nor the Issuer has made any independent investigation of the extent to which any such factors may have an adverse effect on the revenues of the Obligated Group.
Sale of Personal Residences
The number of persons who can afford payment of the entrance fees and monthly service fees at the Facility may be affected by general economic conditions. It is anticipated that a substantial number of existing and potential applicants for residency in the Facility expect or will expect to pay the entrance fees from the proceeds of the sale of a residence. Nationwide, there previously had been a substantial reduction in residential sales volume, a reduction in residential sales prices and residential mortgage loans generally had become less available. While housing prices and sales volume in Ohio have stabilized and shown recent improvement, if there is a another reduction or stagnation in residential sales volume or if mortgage loans remain difficult to secure or if such loans are only available only at interest rates that prospective home purchasers are unwilling to pay, or should there be any other material adverse conditions in the residential housing market, such prospective residents may not have sufficient funds to meet financial obligations under their residency agreements, thereby causing a delay in the occupancy or remarketing of vacated units, and such prospective residents may choose not to establish residence at the Facility, which would have an adverse impact on the revenues of the Obligated Group.
Potential Refund of Entrance Fees Under certain circumstances, the Corporation is obligated to refund all or a portion of a resident's entrance fee upon the resident's departure from the Facility. The payment of such refunds could adversely affect the Corporation's ability to make payments required by the Sublease and the Obligated Group's ability to make payments required by the Series 2014 Note. Nature of Income and Assets of the Elderly A large percentage of the monthly income of the residents of the Facility is expected to be fixed in amount, consisting of income derived from savings, pensions, investments and Social Security payments. If, due to inflation or otherwise, substantial increases in monthly fees are required to cover
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increases in operating costs and other expenses, residents may have difficulty paying or may be unable to pay increased fees. The Corporation’s inability to collect from residents the full amount of their payment obligations, either when due or at all, may jeopardize the ability of the Corporation to pay amounts due under the Sublease and the Obligated Group's ability to make payments required by the Series 2014 Note. For a description of the Corporation’s Resident Benevolent Fund, see “SELECTED UTILIZATION AND FINANCIAL INFORMATION – Charitable Care” in APPENDIX A hereto. Organized Resident Activity The Corporation may, from time to time, be subject to pressure from organized groups of residents seeking, among other things, to raise the level of services or to maintain the level of monthly service fees with respect to the Facility or other charges without increase. Moreover, the Corporation may be subject to conflicting pressures from different groups of residents, some of whom may seek an increase in the level of services while others wish to hold down monthly service fees and other charges. No assurance can be given that the Corporation will be able satisfactorily to meet the needs of such resident groups. Competition
The Facility is located in an area where other continuing care retirement facilities and other competitive facilities exist, and may in the future be developed. The Facility may also face additional competition in the future as a result of changing demographic conditions and the construction of new, or the renovation or expansion of existing, continuing care facilities in the geographic areas served by the Facility. The Obligated Group will also face competition from other forms of retirement living, including condominiums, apartment buildings and facilities not specifically designed for the elderly, some of which may be designed to offer similar facilities but not necessarily similar services, at lower prices. In addition, there are few entry barriers to future competitors because competing facilities generally do not require a certificate of need approval for independent living facilities. All of these factors combine to make the elderly housing industry volatile and subject to material change that cannot be currently predicted.
Changing Capabilities of Home Health Care Technology; Impact on Demand for Facility
New and changing methods of care delivery, such as web-based home monitoring, telemedicine and mobile health will likely change the way in which the Corporation and Home Care deliver home health, hospice and other community-based services. These developments will further the ability of the home health and hospice industry to care for patients in their homes. Proliferation and availability of technological changes are expected to increase the ability of the elderly to remain in their homes longer into their lives than has historically been possible feasible, which could result in significantly reduced demand for facilities such as the Corporation’s Facility. Efforts to reduce hospital readmissions and costs in the overall care continuum will further the use of these new and changing technologies. These changes may allow other companies, including hospitals and other healthcare organizations that are not currently providing home health and hospice care, to expand their services to include home health services, hospice care or similar services. The Corporation and Home Care may encounter increased competition in the future that could negatively impact patient referrals to it, limit its ability to maintain or increase its market position and adversely affect the Obligated Group’s profitability. The inability of Home Care to adapt to this changing information technology environment or invest in the technological and clinical infrastructure necessary to adopt these changes, could adversely affect the operations of the Obligated Group as a whole.
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Additions to, and Withdrawals from, the Obligated Group
The Corporation, Birchton and Home Care are the initial Members of the Obligated Group. Upon satisfaction of certain conditions of the Master Indenture, other entities can become Members of the Obligated Group. In addition, exiting Members of the Obligated Group may, under certain circumstances, withdraw from the Obligated Group. See APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Entrance into the Obligated Group" and "- Withdrawal from the Obligated Group.” Management of the Corporation currently has no plans to add additional Members to the Obligated Group. However, if and when new Members are added, or if and when any Member of the Obligated Group withdraws from the Obligated Group, the Obligated Group’s financial situation, operations and the material risks relating to the operations and revenue generations thereof will likely be altered from that of the initial Obligated Group Members. The Master Indenture provides that so long as the Series 2014 Note is Outstanding, the Corporation may not withdraw from the Obligated Group.
Adequacy of Remedies
There can be no assurance that upon an acceleration the amount of money or foreclosure receipts available will be adequate to repay the Obligated Group’s Indebtedness. Furthermore, whatever is realized will be distributed pro rata to all holders of Obligations under the Master Indenture. The Master Indenture will secure the repayment of all Obligations under the Master Indenture, including without limitation, the Initial Master Notes.
Uncertainty of Revenues
Except to the extent that the Series 2014 Bonds will be payable from the proceeds thereof or investment income thereon or, under certain circumstances, proceeds of insurance, sale or condemnation awards, the Series 2014 Bonds will be payable solely from payments or prepayments to be made by the Corporation under the Sublease and by the Obligated Group on the Series 2014 Note. The ability of the Corporation to make payments under the Sublease and the ability of the Obligated Group to make payments on the Series 2014 Note is dependent upon the generation by the Obligated Group of revenues in the amounts necessary for the Obligated Group to pay the principal, premium or purchase price, if any, and interest on the Series 2014 Bonds, as well as other operating and capital expenses. The realization of future revenues and expenses are subject to, among other things, the capabilities of the management of the Obligated Group, government regulation and future economic and other conditions that are unpredictable and that may affect revenues and payment of principal of and interest on the Series 2014 Bonds. No representation or assurance can be made that revenues will be realized by the Obligated Group in amounts sufficient to make the required payments with respect to debt service on the Series 2014 Bonds.
Uncertainty of Investment Income
A portion of the Obligated Group’s revenues available to pay debt service is expected to come from investment income and net realized gains on the investment of available funds. The amount of such interest earnings and gains will fluctuate with changes in prevailing interest rates and financial market conditions.
Malpractice Claims and Losses
Currently, all of the Corporation’s physicians are contracted, with the physicians, and not the Corporation, responsible for obtaining malpractice liability insurance to cover physician services. The Corporation maintains malpractice liability insurance for the Residential Care Facility and the Health
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Care Center. The operations of the Corporation may be affected by increases in the incidence of malpractice lawsuits against physicians, elder care facilities and care providers in general and by increases in the dollar amount of client damage recoveries. These may result in increased insurance premiums for physicians (which may be passed along in whole or in part to the Corporation through the fees paid by the Corporation to its contract physicians), and for the Corporation. These may also result in an increased difficulty for the physicians and/or the Corporation in obtaining malpractice insurance. It is not possible at this time to determine either the extent to which malpractice coverage will continue to be available to the Corporation or the Corporation’s contracted physicians or the premiums at which such coverage can be obtained.
Implementation of Master Plan As described in APPENDIX A under the caption “SELECTED UTILIZATION AND FINANCIAL INFORMATION - Future Plans - Corporation’s Master Plan”, the Corporation is in the process of implementing a 5-year Master Plan that calls for significant capital investment in the Corporation’s Facility over such period. Proceeds of the Series 2014 Bonds will be used to finance the costs of the Project, which Project comprises a portion of the projects included in the Master Plan. However, additional components of the Master Plan will need to be funded in the future, through one or more of available Corporation funds, entrance fees, additional debt incurrence or fundraising. There can be no certainty that funds will be available in the future from one or more of these sources to fully implement the Master Plan. In the event the Master Plan were not fully implemented, there is no assurance that the Corporation’s Facility will continue to attract residents and generate sufficient revenues to make debt service payments on the Series 2014 Bonds. Limitations on incurrence on additional indebtedness in the Master Indenture may preclude the Obligated Group from borrowing in the future to complete implementation of the Master Plan. Construction Risks While the Corporation believes it has accurately estimated the costs of the Project, cost overruns may occur due to change orders and other factors. Should the Corporation experience cost overruns, the Corporation could be forced to rely more heavily on its cash reserves; borrow additional funds; or delay project development, all of which could negatively impact the operations of the Obligated Group. Management of the Corporation estimates that the construction of 2015 River Point Villas Project will be completed by October, 2015. No assurance can be given, however, that the 2015 River Point Villas Project will be completed on schedule. Construction of the 2015 River Point Villas Project, as well as other construction projects that may be undertaken as the Master Plan is implemented, are also subject to the usual risks associated with construction projects including, but not limited to, delays in issuing required building permits or other necessary approvals or permits, strikes, shortages of materials and adverse weather conditions. Such events could result in delaying completion of the Project. The Corporation anticipates that all required permits will be obtained in due course, but none have yet been applied for, or received, to date. In addition, the date of substantial completion may be extended by reason of changes authorized by the Corporation, delay due to acts or neglect of the Corporation or by independent contractors employed by the Corporation or by labor disputes, the insolvency of one or more contactors, fire, unusual delay in transportation, adverse conditions not reasonably anticipated, unavoidable casualties or any causes beyond the control of the contractors. Any significant delay in completion of the construction projects could have a materially adverse effect on the financial condition of the Obligated Group and its ability to pay debt service on the Series 2014 Bonds. The Corporation has not yet entered into construction contracts for the 2015 River Point Villas Project. There is no requirement in the Sublease that the Corporation obtain a guaranteed maximum price
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contract for all or a portion of the 2015 River Point Villas Project or future projects, nor a requirement that the Corporation require payment and performance bonds as part of the 2015 Villas Project or future projects. If payment and performance bonds securing performance of the 2015 River Point Villas Project or future projects contractor’s obligations under the construction contracts are not obtained, if such contractor fails to perform its obligations under the construction contact, or becomes insolvent, the construction costs of such project(s) may be increased, the Corporation may need to obtain additional debt financing or use its funds to complete construction, and/or the construction timetable for such project(s) could be delayed.
The Corporation has engaged the services of LCS Development, an affiliate of the Manager, to assist in the development of the Corporation’s Master Plan. Corporation management anticipates using an owner’s representative, and not LCS Development or another development company, in connection with the construction of the 2015 River Point Villas Project and other future Master Plan project components. Management Agreement; Relationship with Life Care Services, LLC As described in APPENDIX A under the caption “THE MANAGER – Life Care Services, LLC”, the Corporation has entered into a management agreement (the "Management Agreement") with Life Care Services, LLC (the "Manager") to manage the Corporation's Facility. The Management Agreement commenced on July 1, 2012, and expires on June 30, 2015. The Management Agreement may be terminated without cause and without penalty by the Manager or by the Corporation at any time upon six months’ prior notice, with the effective date of termination being at the end of the first month following such six-month notice period. It may also be sooner terminated in the event of the insolvency of either party. The Corporation expects to renew the Management Agreement with a term ending on June 30, 2018. The Manager and an affiliated company, CRSA, currently manage approximately 124 retirement communities serving over 32,000 residents in 32 states and the District of Columbia. LCS Holdings, Inc. (“LCS”) is the parent company of Life Care Companies LLC and through it the Manager and CRSA.
Although the Corporation's relationship with the Manager is generally viewed as a strength of the Corporation, there are some risks relating to this relationship, including the following: Termination of Management Agreement. The successful operation of the Corporation's Facility is heavily dependent upon the efforts of its management. The Corporation has contracted with the Manager for the day-to-day operations of the Facility. The current Management Agreement expires on June 30, 2015, which date is earlier than the period the Series 2014 Bonds are expected to be outstanding. If the Management Agreement between the Manager and the Corporation expired or was terminated, the Corporation may need to contract with another company to provide comparable management services, or assume such management itself. In the event the Management Agreement expires or is terminated in accordance with its terms, there can be no assurance that the Corporation would be able to contract with another qualified management company in a timely manner. The Executive Director of the Corporation is employed by the Manager. If the Management Agreement expires or is terminated in accordance with its terms, the Corporation will have to hire the current Executive Director or search for a replacement Executive Director. There can be no assurance that the Corporation will be able to hire an Executive Director in a timely manner. If the Management Agreement expires or is terminated in accordance with its terms, and a replacement manager or management company is not retained, the Corporation may not be able to deliver services at the same level of quality and pricing, which could impact occupancy and ultimately the Obligated Group’s ability to pay debt service on the Series 2014 Bonds
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Reputational Risk. The Corporation is subject to changes in the reputation of it and its Facility. Because of the Corporation’s relationship with the Manager, the Corporation is also subject to reputational risk of the Manager, LCS and other facilities managed by the Manager or LCS or one or more of their affiliates. Any adverse change in the public’s perception of the LCS “brand” may affect the Corporation’s ability to attract and retain residents. In addition, litigation brought against the Corporation, the Manager, LCS, or any other affiliate of the Manager or LCS may have a materially adverse impact on the reputation of the Corporation, the Manager or LCS. There can be no assurance that these or other factors will not adversely affect the Corporation’s ability to generate adequate funds to pay all amounts due under the Sublease.
On the date of issuance of the Series 2014 Bonds, the Corporation, Birchton and Home Care will be the sole Members of the Obligated Group. None of the Manager, LCS or any other affiliate of the Manager or LCS is a Member of the Obligated Group, and none has any obligation with respect to the Series 2014 Bonds or any Obligations issued under the Master Indenture.
No Actuarial Study
The Corporation has not previously retained an independent actuary to provide an actuarial study of the Facility. "Type-A" Lifecare contracts, which are provided (among other types of residency agreements) by the Corporation at the Facility, provide residents with unlimited, lifetime access to independent living, assisted living and skilled nursing care with little or no increase in the monthly fee as the result of a need for a higher level of care. It is common for providers such as the Corporation, based on the actuarial studies, to designate a portion of initial entrance fees and monthly service fees received to be used only for providing future health care services. An actuarial study evaluates whether the cash and reserves held by the Corporation are sufficient to cover its future contractual obligations to Type A Lifecare residents of the Facility. It is common for providers of Type A Lifecare contracts to conduct actuarial studies periodically.
Although the Corporation has not historically conducted actuarial studies, the Manager has provided the Corporation with a population analysis periodically. In addition, the Manager annually prepares an analysis relating to the Corporation's future service obligation, as described in Footnote 9 in APPENDIX B.
The Corporation has ordered an actuarial study and expects to have it completed by early December 2014. In addition, if the audited financial statements of the Obligated Group for any Fiscal Year show an increase in liabilities related to future service obligation, the Corporation is obligated by the Master Indenture to select, within 30 days of the release of such audited financial statements, a Consultant to produce an actuarial study; provided, however, that the Corporation shall not be obligated to select a Consultant to produce such an actuarial study if an actuarial study has been prepared for the Corporation within the prior three years and if the Corporation complied with its obligation to make public the executive summary of such actuarial study. Pursuant to the Master Indenture and the Disclosure Undertaking, the Corporation is required to provide, as part of its annual reporting, an executive summary of any actuarial studies received by the Obligated Group during the preceding Fiscal Year, if any.
Ohio Attorney General Inquiry On April 11, 2014, the Ohio Attorney General's Office issued an Investigative Demand on the
Corporation. The investigation was initiated pursuant to Chapter 1331 of the Ohio Revised Code (the Valentine Act) to determine whether a conspiracy existed in the provision of assisted living, memory care and skilled nursing services to Ohio senior citizens. The Investigative Demand required the Corporation to answer various written interrogatories and to produce certain documents. The Corporation has
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complied with the Investigative Demand by answering several interrogatories, producing numerous documents, and protecting its retired computer server. The Attorney General's investigation is ongoing. The Attorney General has advised that his staff may interview at least one retired employee of the Corporation and the Manager. In addition, the Attorney General may expand his investigation to include new inquiries of both the Corporation and the Manager. At this time, the Attorney General has neither alleged impropriety, nor proposed any sanctions, against the Corporation. Until the Attorney General concludes his investigation, the impact of his investigation on the Corporation and the materiality of its outcome, including any potential fines, penalties or other sanctions assessed against the Corporation, cannot be determined.
Health Care Reform Recently passed health care reform law at the federal level would impose certain expanded contracting requirements on long-term care facilities regarding coordination of care with hospitals and hospital systems going forward. In addition, legislation is periodically introduced in Congress and in the Ohio legislature that could result in limitations on revenues, reimbursements, or charges for health care facilities. At this time, no determination can be made as to whether such federal or state legislation will be enacted or, if enacted, its impact on the Corporation’s Facility. The "Patient Protection and Affordable Care Act" and "The Health Care and Education Affordability Reconciliation Act of 2010" (together referred to herein as the "Health Reform Act") were enacted in March, 2010, but soon after became the subject of court challenges and efforts to repeal or modify its substantive provisions. On June 20, 2012, the U.S. Supreme Court upheld most of the provisions of the Health Reform Act, but rejected a requirement that states significantly expand Medicaid eligibility. Instead, each state must determine whether federal financial incentives included in the Health Reform Act merit expanding its Medicaid program. Some of the provisions of the Health Reform Act took effect immediately while others will take effect over a ten-year period. Because of the complexity of the Health Reform Act generally additional legislation modifying or repealing portions of the Act is likely to be considered and enacted over time. New guidelines and regulations related to the Health Reform Act will also likely be enacted. It is impossible to predict what, if any, such new guidelines and regulations will entail or how they may affect the Obligated Group, its operations or its financial condition. The Health Reform Act provides changes with respect to how consumers will pay for their own and their families' health care and how employers will procure health insurance for their employees. In addition, the Health Reform Act requires insurers to change certain underwriting practices and benefit structures in order to cover individuals who previously would have been ineligible for health insurance coverage. As a result, there is expected to be a significant increase in the number of individuals eligible for health insurance coverage. The overall stated goal of the Health Reform Act is to provide access to health insurance coverage to an additional 32 million people. The legislation intends to accomplish this objective through various provisions, including: (i) creating active markets (referred to as exchanges) in which individuals and small employers can purchase health insurance for themselves and their families or their employees and dependents, (ii) providing subsidies for premium costs to individuals and families based upon their income relative to the federal poverty levels, (iii) mandating that individuals obtain, and certain employers provide, a minimum level of health insurance, and providing penalties or taxes on individuals and employers that do not comply with these mandates, (iv) expansion of private commercial insurance coverage generally through reforms such as prohibitions on denials of coverage for pre-existing conditions and elimination of lifetime or annual cost caps, and (v) expanding existing public programs,
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including Medicaid, for individuals and families. The Congressional Budget Office ("CBO") estimates that in federal fiscal year 2015, 19 million consumers who are currently uninsured will become insured, followed by an additional 6 million consumers in federal fiscal year 2016. However, to the extent the provisions of the Health Reform Act substantially increase the number of insured consumers, an increase in utilization of health care services by those who are currently avoiding or rationing their health care can be expected and bad debt expenses may be reduced. Associated with increased utilization will be increased variable and fixed costs of providing health care services, which may or may not be offset by increased revenues. Some of the specific provisions of the Health Reform Act that may affect the Obligated Group’s operations, financial performance or financial condition include the following (this listing is not, is not intended to be, nor should be considered to be comprehensive):
• With varying effective dates, the annual Medicare market basket updates for many providers, including skilled nursing, would be reduced, and adjustments to payment for expected productivity gains would be implemented.
• With varying effective dates, the Health Reform Act mandates a reduction of waste, fraud and abuse in public programs by allowing provider enrollment screening, enhanced oversight periods for new providers and suppliers, and enrollment moratoria in areas identified as being at elevated risk of fraud in all public programs, and by requiring Medicare and Medicaid program providers and suppliers to establish compliance programs. The legislation requires the development of a database to capture and share healthcare provider data across federal healthcare programs and also provides for increased penalties for fraud and abuse violations, and increased funding for anti-fraud activities.
The Health Reform Act provides for the implementation of various demonstration programs and pilot projects to test, evaluate, encourage and expand new payment structures and methodologies to reduce health care expenditures while maintaining or improving quality of care, including bundled payments under Medicare and Medicaid, and comparative effectiveness research programs that compare the clinical effectiveness of medical treatments and develop recommendations concerning practice guidelines and coverage determinations. Other provisions encourage the creation of new health care delivery programs, such as accountable care organizations, or combinations of provider organizations, that voluntarily meet quality thresholds to share in the cost savings they achieve for the Medicare program. The Health Reform Act also provides funding for establishment of a national electronic health records system. The outcomes of these projects and programs, including their effect on payments to providers and financial performance, cannot be predicted. In addition, many states have enacted or are considering enacting, measures that are designed to reduce their Medicaid expenditures and change private health care insurance. States have adopted or are considering adopting legislation designed to reduce coverage and program eligibility, enroll Medicaid recipients in managed care programs and/or impose additional taxes on hospitals to help finance or expand states' Medicaid systems. See discussion of Ohio Medicaid under "Third Party Reimbursement". The Health Reform Act also includes The Elder Justice Act which provides funding for adult protective services aimed at elder abuse prevention and enhanced investigation of elder abuse and neglect. It became effective on March 23, 2010. The Elder Justice Act requires prompt reporting to the Department of Health and Human Services ("DHHS") by long term care facilities who receive at least $10,000 per year in federal funds of any reasonable suspicion of a crime, as defined by local law, occurring at the long term care facility. This includes Medicare/Medicaid fraud and abuse. Reports are
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required to be made not later than two hours after forming the suspicion when serious physical injury occurs, and not later than 24 hours after forming suspicion where serious bodily injury was not involved. "Serious bodily injury" is not defined by the Elder Justice Act. Failure to report is subject to penalties up to $200,000 plus potential exclusion from federal programs. Stricter penalties apply if delay led to further injury. The Health Reform Act also includes the Patient Safety and Abuse Prevention Act which authorizes DHHS to create a national program to identify best practices for background checks on long term care facility employees who have direct access to patients. The Patient Safety and Abuse Prevention Act creates grants for states who wish to participate in the creation of a nationwide program. This focus on health care reform may increase the likelihood of significant changes affecting the health care industry. Possible future changes in the Medicare, Medicaid and other state programs, including Medicaid supplemental payments pursuant to upper payment limit programs, may reduce reimbursements to the Members of the Obligated Group and may also increase their operating expenses. Third-Party Reimbursement
General. The health care industry, in general, is subject to regulation by a number of governmental agencies, including those which administer the Medicaid and Medicare programs, and other federal, state and local governmental agencies. As a result, the industry is sensitive to legislative changes in such programs and is affected by reductions in governmental spending for such programs. Congress has in the past enacted a number of provisions which affect health care providers, and additional legislative changes can be expected. Previous legislative actions have included limitation of payments to nursing homes under the Medicare and Medicaid programs. Additional legislation dealing with nursing home revenues could be introduced, and if enacted, such legislation might have an adverse impact upon the revenues of the Mortgaged Property.
The Corporation receives payments for providing nursing care for eligible patients under Title XVIII of the federal Social Security Act (Medicare). The Corporation is certified as a provider of services under the Medicare program. Payments are made directly to the Corporation for residents qualifying for Medicaid or Medicare on the basis of per diem rates. Medicaid payments are the sole reimbursement a facility may receive for the services required by law to be provided to these residents.
Medicare. Medicare is a federal insurance program which, among other things, provides reimbursement for nursing facility care in Medicare-certified facilities. A resident will qualify for Medicare reimbursement only if the resident’s admission to the nursing home facility is immediately subsequent to the resident’s three or more day stay at an acute care facility. Medicare reimbursement for nursing care is limited to a renewable 100-day period for each qualified resident.
The Centers for Medicare and Medicaid Services of the Department of Health and Human Services (“CMS”) has established a prospective reimbursement system (“PPS”) for skilled nursing facilities, similar to the DRG prospective payment system for acute care providers under Medicare. Section 4432 of the Balanced Budget Act of 1997 (“Section 4432”) mandated that PPS reimbursement be implemented for nursing facilities for all cost reporting periods beginning after July 1, 1998.
For facilities which first participated in the Medicare program on or after October 1995, reimbursement is paid at the “federal per diem rate”. The per diem rate covers all costs (routine, ancillary and capital) related to skill nursing facility services provided to Medicare beneficiaries. The federal per diem rate is based on an “unadjusted federal per diem rate” derived from the weighted average of standardized allowable costs for all nursing facilities for the cost reporting period which began in 1995,
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updated by a factor based on the skilled nursing facility market basket percentage. The unadjusted federal rate is then adjusted for the facility's rate with (i) case mix, based on a resident classification system (MDS 3.0) that accounts for the relative resource utilization of different patient types (Resource Utilization Groups IV); and (ii) wages and related costs for the area, compared to the national average of such costs. The facility-specific per diem rate is based on each facility’s allowable costs for the cost reporting period which began in fiscal year 1995, updated by a factor based on the skilled nursing facility market basket percentage, but without adjustment for case mix or wage levels. Regulations updating PPS reimbursement for nursing facilities are published periodically with changes and modifications that are implemented in the reimbursement rates and mechanisms. In July, 2011, CMS promulgated a rule that updated the SNF PPS system for FY2012 that implemented a reimbursement reduction with recalibrating the case-mix levels of the SNF PPS to adjust for greater than expected use of high-paying payment united added to the SNF PPS in October, 2010. The final rule took effect on October 1, 2011.
Other future legislation, regulation or actions by the federal government are expected to continue the trend toward more restrictive limitations on reimbursement for long term care services. At present, no determination can be made concerning whether, or in what form, such legislation could be introduced and enacted into law. Similarly, the impact of future cost control programs and future regulations upon the Obligated Group’s financial performance cannot be determined at this time.
Medicare HMOs. Medicare allows Medicare beneficiaries to enroll in certain federally qualified health maintenance organizations and competitive health plans (“Medicare HMOs”). Medicare HMOs enter into contractual arrangements with providers, pursuant to which the Medicare HMOs pay negotiated rates which may be less than standard Medicare payment rates. Such Medicare HMOs may pay providers on a “capitated” basis; that is, at a predetermined amount per enrollee without regard to the value of services used by enrollees.
Medicare Reporting Requirements. Medicare regulations provide that all entities furnishing services for which payment may be made under Medicare are required to submit certain information to CMS. Persons who fail to submit the required information or who fail to report the information accurately and completely are subject to civil money penalties. As these requirements are numerous, technical and complex, there can be no assurance that the Obligated Group may not incur such penalties in the future. These penalties may be material or adverse.
Government Health Program Regulations Governing Referrals. There is an increasingly expanding and complex body of state and federal law, regulation and policy relating to relationships between providers of health care services to patients and potential referral sources, such as physicians. The illegal remuneration statute applicable to Medicare, Medicaid, and all federal and state health care programs (“Government Programs”) prohibits the offer, payment, solicitation, or receipt of any remuneration, directly or indirectly, covertly or overtly, in cash or in kind, for (1) the referral of patients, or arranging for the referral of patients, for the provision of items or services for which payment may be made under the Government Programs; or (2) the purchase, lease or order, or arranging for the purchase, lease or order, of any good, facility, service or item for which payment may be made under the Government Programs. A violation of the illegal remuneration statute constitutes a felony criminal offense, and applicable sanctions include imprisonment of up to five years, fines up to $25,000 or three times the damages and exclusion from the Medicare program.
In addition to the illegal remuneration statutes, Section 1877 of the Social Security Act (commonly known as the Stark Law) imposes certain restrictions upon referring physicians and providers of certain designated health services, including long term care services, under the Medicare and Medicaid programs. Subject to certain exceptions, the Stark Law provides that if a physician (or a family member of a physician) has a financial relationship with an entity (i) the physician may not make a referral to the
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entity for the furnishing of designated health services reimbursable under the Medicare and Medicaid programs, and (ii) the entity may not bill for designated health services furnished pursuant to a prohibited referral. Entities and physicians committing an act in violation of the Stark Law are subject to civil money penalties and exclusion from the Medicare and Medicaid programs.
Sanctions could be applied in situations where the Corporation participates in joint ventures with entities which may be in a position to make or receive referrals, enters into personal service agreements or other contracts with physicians (or their immediate family members), enters into space and equipment rental agreements, waive co-payments and deductibles, etc. Such sanctions could result in a material adverse effect on the financial position of the Obligated Group, exclusion from Government Programs, loss of license or disciplinary action by licensing agencies, and/or substantial civil monetary penalties.
Management of the Corporation does not believe that the Obligated Group is involved in activities that pose a significant risk of sanctions under these referral laws. However, there can be no assurance that such challenge or investigation will not occur in the future.
Medicaid. Medicaid is designed to pay providers for needed medical care given to the indigent. This program is funded jointly by federal and state appropriations and is administered by the various states. Health care benefits are available under each participating state’s Medicaid program, under prescribed limits, to persons meeting certain minimum income, asset and other eligibility requirements. Some states, pursuant to waivers by the Medicaid program, have developed alternatives to the Medicaid program that apply only in such states. Although the state programs differ in form from the Medicaid program, their purpose is still to serve the medically indigent.
The Health Care Reform Act mandated the expansion of Medicaid to include coverage for individuals in a broader income range. The Supreme Court overturned this particular portion of the Health Care Reform Act in 2012, stating that states could choose whether to expand their state Medicaid program or not. Ohio's governor took action to secure additional federal funding to expand Ohio's Medicaid coverage to individuals with incomes up to 138% of the federal poverty level. This expanded Ohio's population covered under the Medicaid program by more than 367,000 individuals in 2014. However, the authorization to accept federal funds earmarked for the Medicaid expansion only runs through June 30, 2015. After this time, continue acceptance of federal funds for Medicare expansion coverage will require legislative approval from the Ohio General Assembly when the next biennial budget is proposed in 2015. There is no guarantee that the Ohio General Assembly will vote to continue receiving federal funding and further changes to the Ohio Medicaid program are possible. These changes could adversely affect the financial condition of the Obligated Group.
In Ohio, nursing facility services are reimbursed using a prospective payment rate that has been calculated for each nursing facility. The method for establishing the total prospective rate for higher acuity residents in nursing facilities is based on allowable per diems established for direct care costs, other protected costs, indirect care costs, and reasonable capital costs. The amount of reimbursable costs in each category is limited, however. The limitations are based on complex calculations taking into account factors such as the acuity of services provided to patients, facility operating costs, costs of providing ancillary services, and depreciation of capital assets. Nursing facilities are paid a flat per diem rate that does not take facility specific characteristics into account for low acuity residents. The reimbursement calculations do not ensure that a facility will receive Medicaid reimbursement that is equal to or greater than the facility's actual costs of caring for patients. State alternatives to Medicaid are often designed to move patients out of traditional Medicaid and into alternative health plans or into private health plans. In an effort to enhance the level of access, quality, and continuity of care as well as to increase the predictability of Medicaid costs, the Ohio Office
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of Unemployment Compensation has contracted with managed care plans since 1978 for the provision of health services to a portion of the Medicaid population. On May 1, 2014, Ohio launched a three-year demonstration project to implement an integrated care system for Ohio residents who are covered under both Medicare and Medicaid. Under this program, MyCare Ohio, dual eligible individuals are enrolled in a Medicaid managed care program who, along with the individual, the individual's primary care provider and specialists, will manage the health care services provided. It remains unseen what the impact the MyCare Ohio demonstration project will have, if any, on reimbursement levels to assisted care and nursing facility providers. Payments made to health care providers under the Medicaid program are subject to change as a result of federal or state legislative and administrative actions, including changes in the methods for calculating payments, the amount of payments that will be made for covered services and the types of services that will be covered under the program. Such changes have occurred in the past and are expected to occur in the future, particularly in response to federal and state budgetary constraints. It is unknown if and how such changes might impact the Obligated Group in the future. Ohio imposes a franchise permit fee ("Bed Tax") on nursing home beds and hospital long-term care beds. The revenue generated from the Bed Tax is utilized to draw down Medicaid federal matching funds for nursing home services. Accordingly, the Bed Tax results in a shift of funds from nursing homes with a relatively lower amount of Medicaid reimbursement to others with a higher amount. It is unknown whether the Ohio General Assembly will modify the formula or the amount of the Bed Tax or in Medicaid reimbursement rates. Changes to payor mix and the Ohio Bed Tax formula and rates have occurred in the past and are expected to occur in the future, particularly in response to federal and state budgetary constraints. It is unknown if and how such changes might impact the Obligated Group in the future. State Regulatory Issues Regulation of Continuing Care Facilities. At the present time, laws in the State regulating the operation of continuing care facilities are limited to: (i) licensing and registration requirements, (ii) standards of disclosure to residents and potential residents, and (iii) the rights of residents. However, it is possible that additional legislation regulating the construction and operation of continuing care facilities may be enacted in the future. Newly constructed continuing care facilities in Ohio (including in the Columbus, Ohio area) and other states have encountered financial difficulties for various reasons, such as inadequate initial occupancy rates and inability to achieve forecasted levels of revenues and expenses. This has led to the adoption by several states of legislation regulating continuing care facilities. Such regulation generally includes requirements for: issuance of a certificate of authority prior to construction of a continuing care facility; standards of disclosure to prospective residents; minimum requirements for residence care agreements to protect the interest of residents; requirements to refund entrance fees more quickly after a resident leaves a unit, instead of such refunded entrance fees being paid when a unit is reoccupied; and maintenance of minimum reserves for payment of debt service or, in some cases, operating expenses. In some states, if a continuing care provider experiences financial difficulties, the rights of creditors (including Bondholders) may be limited or stayed if the state is empowered to initiate receivership or similar proceedings against the provider to protect the rights and interests of residents. Although designed to protect the interests of residents, such state regulation may increase the cost of development or operation of continuing care facilities and make profitable operation more difficult. The possible adoption of any additional legislation in the State regulating continuing care facilities and its effect on the operations of the Obligated Group cannot be predicted at this time. Certificate of Need Program. The State has undertaken health planning through its certificate of need program, which requires Ohio Department of Health approval for the addition of long-term care
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beds at a facility in the State. The Ohio Certificate of Need law was recently changed, continuing the moratorium on new long-term care beds. However, the Ohio Certificate of Need Law indefinitely extends authority of the Director of Health (the "Director") to grant Certificates of Need for replacement or relocation of long-term care beds within a county, and in specific instances, a relocation of nursing home beds from a contiguous county. The new law also creates a mechanism for the Director to grant Certificates of Need for relocation of long-term care beds between any two counties. The process includes a comparative review of need for each county. Additional beds will be taken out of service from counties from which long-term care beds are transferred, and redistributed at the Director's discretion, after a new bed-need determination is made. Thus, depending on the projects to be undertaken by the Obligated Group in Ohio in the future, certificate of need approval may be necessary. This can be a time consuming and expensive process with no guarantee of success. The possible inability to obtain future governmental approvals to undertake projects necessary to remain competitive, both as to rates and changes as well as quality and scope of care, could adversely affect the operations of the Obligated Group at its facilities. Regulation of Home and Community-Based Services. Under Ohio law, there is neither state licensure nor registration for Home Health Agencies ("HHAs"). All HHAs certified to participate in the Medicare program must provide skilled nursing care and at least one of five other specified therapeutic services. HHAs may be proprietary, government operated, health facility based or HMO operated. They may operate branches and/or sub-units in addition to the parent agency and under federal guidelines may operate across state lines from the Ohio-based units as long as their personnel are qualified in the state in which the service is being provided and the parent agency is certified in the state in which it is located. However, there must be a reciprocal agreement in place between Ohio and the second state before an HHA is allowed to provide cross state line services in this manner. Ohio currently has no reciprocal agreement with any neighboring state. Since October 1996, HHAs have been subject to a standard survey at least every 36 months. Since November 1997, regardless of past compliance history or survey frequency category, any HHA that is part of a state, regional or national fraud and abuse initiative must be surveyed no less frequently than every 12 months. Additionally, each year a five percent (5%) targeted sample of HHAs is surveyed. HHAs are targeted by CMS based on an analytical program that identifies agencies with indicated higher-than-average risk of quality problems and the intervals between the HHA's last standard survey and the targeted survey may vary from six (6) to thirty-six (36) months. HHAs may achieve and maintain Medicare certification through accreditation by a nationally-recognized accreditation organization whose standards for home health services are approved by CMS as meeting or exceeding the Medicare Conditions of Participation. State hospice licenses must be renewed every three years. Although regulation of home and community-based services is designed to protect the interests of recipients of such services, additional state or federal regulation may increase the cost of expansion or operation of the services and make profitable operation more difficult. The possible adoption of any additional Ohio legislation regulating home and community-based services and its effect on the operations of the Obligated Group cannot be predicted at this time. Rights of Residents
The Corporation enters into residency agreements with its residents. For more information about the residency agreements, see APPENDIX A – “THE FACILITY – Residency Agreements.” Although these agreements give to each resident a contractual right to use space and not any ownership rights in the Corporation's facilities, in the event that a Bond Trustee or the holders of the Series 2014 Bonds seek to enforce any of the remedies provided by the Bond Indenture upon the occurrence of a default or the Master Trustee seeks to enforce remedies under the Mortgage or the Master Indenture, it is impossible to predict the resolution that a court might make of competing claims among the Master Trustee, the Bond Trustee, the Issuer or the holders of the Series 2014 Bonds and a resident of the Corporation's facilities who has fully or substantially complied with the terms and conditions of his or her residency agreement.
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Intermediate Sanctions
On July 31, 1996, the Taxpayers Bill of Rights 2 (the “Taxpayers Act”) was signed into law. The Taxpayers Act provides the IRS with an “intermediate” tax enforcement tool to combat violations by tax-exempt organizations of the private inurement prohibition of the Code. Prior to the “intermediate sanctions law,” the IRS could punish such violations only through revocation of an entity’s tax-exempt status.
Intermediate sanctions may be imposed where there is an “excess benefit transaction,” defined to include a disqualified person (i.e., an insider) (1) engaging in a non-fair market value transaction with the tax-exempt organization; (2) receiving unreasonable compensation from the tax-exempt organization; or (3) receiving payment in an arrangement that violates the private inurement proscription.
A disqualified person who benefits from an excess benefit transaction will be subject to a “first tier” penalty excise tax equal to 25% of the amount of the excess benefit. Organizational managers who participate in an excess benefit transaction knowing it to be improper are subject to a first-tier penalty excise tax of 10% of the amount of the excess benefit, subject to a maximum penalty of $10,000. A “second tier” penalty excise tax of 200% of the amount of the excess benefit may be imposed on the disqualified person (but not the organizational manager) if the excess benefit transaction is not corrected in a specified time period.
The IRS has issued revenue rulings dealing specifically with the manner in which a facility providing residential services to the elderly must operate in order to maintain its exemption as an organization described in Section 501(c)(3). Revenue Ruling 61-72 holds that an organization providing residential services to the elderly qualified for exemption under Section 501(c)(3) where the organization: (1) was dedicated to providing care and housing to aged individuals who otherwise would be unable to provide for themselves without hardship; (2) rendered, to the extent of its financial ability, services to all or a reasonable proportion of its residents at substantially below actual cost; and (3) rendered services that ministered to the needs and the relief of hardship or distress among the elderly. Revenue Ruling 72-124 holds that an organization will qualify for exemption under Section 501(c)(3) if it meets the elderly’s special needs for housing, healthcare, and financial security. The need for housing will be met if the facility is specifically designed to meet some combination of the physical, emotional, social, religious, and recreational needs of the elderly. The need for healthcare will be met if the organization provides or arranges for some form of healthcare. The need for financial security will be met if the organization is committed to an established policy of maintaining in residence any persons who become unable to pay their charges, and the organization provides its services at the lowest feasible cost. Revenue Ruling 79-18 holds that a facility providing residential services to the elderly may admit only those tenants who are able to pay full rental charges, provided that those charges are set at a level that is within the financial reach of a significant segment of the community’s elderly persons and that the organization maintains in residence those tenants who become unable to pay their monthly charges.
The IRS has audit guidelines which implement a policy to scrutinize more closely the activities of health care providers to ensure that they satisfy the requirements for tax-exempt status. Given these audit guidelines and other related pronouncements by the IRS, it may be more difficult for health care providers to maintain their tax-exempt status. Health-care providers, such as the Corporation, may be forced to forego otherwise favorable opportunities for certain joint ventures, recruitment and other arrangements to maintain their tax-exempt status or to avoid other sanctions.
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Possible Changes in Tax Status
General. The possible modification or repeal of certain existing federal income or state tax laws or other loss by the Corporation of the present advantages of certain provisions of the federal income or state tax laws could materially and adversely affect the status of the Obligated Group and its revenues. Failure of the Corporation or the Issuer to comply with certain requirements of the Code, or adoption of amendments to the Code to restrict the use of tax-exempt bonds for facilities such as those being financed and refinanced with Series 2014 Bond proceeds, could cause interest on the Series 2014 Bonds to be included in the gross income of Bondholders or former Bondholders for federal income tax purposes. In such event, the Bond Indenture does not contain any specific provision for acceleration of the Series 2014 Bonds nor provide that any additional interest will be paid to the owners of the Series 2014 Bonds.
The Corporation is a nonprofit corporation, exempt from federal income taxation as an organization described in Section 501(c)(3) of the Code. As a nonprofit tax-exempt organization, the Corporation is subject to federal, state and local laws, regulations, rulings and court decisions relating to its organization and operation, including its operation for charitable purposes. There can often be a tension between the rules designed to regulate a wide range of charitable organizations and the day-to-day operations of a complex senior living organization.
Over the past several years, an increasing number of the operations or practices of nonprofit organizations have been challenged or questioned to determine if they are consistent with the related regulatory requirements. These challenges are broader than concerns about compliance with federal and state statutes and regulations and, in many cases, are examinations of core business practices of the nonprofit organizations. Areas which have come under examination have included pricing practices, billing and collection practices, charitable care, executive compensation, exemption from real property taxation, and others. These challenges and questions have come from a variety of sources, including state Attorneys General, the Internal Revenue Service (referred to as the IRS), labor unions, Congress, state legislatures, and patients, and in a variety of forums, including hearings, audits and litigation. These challenges or examinations include the following, among others:
Federal Congressional Hearings. The Senate Finance Committee has conducted hearings on required reforms to the nonprofit sector and released staff discussion drafts on proposals for reform in the area of tax-exempt organizations, including a proposal for a five-year review of tax-exempt status by the IRS. The House Committee on Ways and Means has held several hearings to examine the tax-exempt sector, hospital tax exemptions and the use of tax-preferred bond financings. It is uncertain if any of these Committees will pursue further investigations or will recommend legislative changes as a result of these inquiries.
IRS Examination of Compensation Practices. In August 2004, the IRS announced a new enforcement effort to identify and halt abuses by tax-exempt organizations that pay excessive compensation and benefits to their officers and other insiders. The IRS announced that it would contact nearly 2,000 charities and foundations to seek more information about their compensation practices and procedures. In February 2009, the IRS issued its Hospital Compliance Project Final Report (the “IRS Final Report”) based on its examination of such tax-exempt organizations. The IRS Final Report indicates that the IRS (i) will continue to heavily scrutinize executive compensation arrangements, practices and procedures and (ii) in certain circumstances, may conduct further investigations or impose fines on tax-exempt organizations.
In February 2009, Senator Kohl, of the Senate’s Special Committee on Aging, requested that the U.S. Government Accountability Office (“GAO”) study the finances, operations and governance of Continuing Care Retirement Communities (“CCRCs”). The GAO has not yet delivered its report and it is
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uncertain whether the report will lead the Special Committee on Aging to pursue further investigation into CCRCs or legislative changes that could affect CCRCs.
Revision of IRS Form 990 for Tax-Exempt Organization. The IRS Form 990 is used by most 501(c)(3) nonprofit organizations exempt from federal income taxation to submit information required by the federal government. On December 20, 2007, the IRS released a revised Form 990 that requires detailed public disclosure of compensation practices, corporate governance, loans to management and others, joint ventures and other types of transactions, political campaign activities, and other areas the IRS deems to be compliance risk areas. The revised form also requires the disclosure of a significantly greater amount of information on community benefit and establishes uniform standards for reporting of information relating to tax-exempt bonds, including compliance with the arbitrage rules and rules limiting private use of bond-financed facilities, including compliance with the safe harbor guidance in connection with management contracts and research contracts. The redesigned Form 990 is intended to result in enhanced transparency as to the operations of exempt organizations. It is also likely to result in enhanced enforcement, as the redesigned Form 990 will make detailed information on compliance risk areas available to the IRS and other stakeholders. At this time it is difficult to predict the additional burden that completion of the revised Form 990 may place on the Obligated Group.
Change in Federal Tax Law
From time to time, proposals are introduced in Congress that, if enacted into law, could have an adverse impact on the potential benefits of the exclusion from gross income for federal income tax purposes of the interest on the Series 2014 Bonds, and thus on the economic value of the Series 2014 Bonds. No prediction is made concerning any pending or future legislation which, if passed, might have the effect on tax treatment on interest on the Series 2014 Bonds. Prospective purchasers should consult their own tax advisors regarding any pending or proposed federal income tax legislation.
Lack of Marketability for the Series 2014 Bonds
Although the Underwriter intends, but is not obligated, to make a market for the Series 2014 Bonds, there can be no assurance that there will be a secondary market for the Series 2014 Bonds, and the absence of such a market for the Series 2014 Bonds could result in investors not being able to resell the Series 2014 Bonds should they need to or wish to do so.
Amendments to the Documents
Certain amendments to the Bond Indenture, the Lease and the Sublease may be made with the consent of the owners of a majority of the principal amount of the outstanding Series 2014 Bonds and certain amendments to the Master Indenture and the Mortgage may be made with the consent of the holders of a majority of the principal amount of outstanding Obligations. Any such amendments may adversely affect the security of the Series 2014 Bondholders and, with respect to the Master Indenture and the Mortgage, such percentage may be composed wholly or partially of the holders of Additional Obligations.
In addition, certain amendments may be made to the Bond Indenture, the Lease and the Sublease without the consent of, or notice to, any of the owners of the Series 2014 Bonds, including but not limited to amendments which, in the judgment of a Consultant (as defined in the Master Indenture), a copy of whose report shall be sent to the Bond Trustee, (1) is in the best interest of the Corporation and (2) does not materially adversely affect the Bondholders taken as a group; provided that no such change shall be made if within sixty (60) days of its receipt of such Consultant’s report, the Bond Trustee shall have obtained a report from another Consultant indicating that in its opinion either clause (1) or clause (2) of
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this paragraph is not satisfied; provided further, that the Bond Trustee shall be under no duty to retain another such Consultant. Although the requirement in clause (2) above requires that such amendment not materially adversely affect the Bondholders taken as a group, that determination is made by a Consultant and not the Bond Trustee. For a description of the Bond Trustee’s role in the consent or objection to a Consultant selected by the Corporation, see APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Approval of Consultants.” If the Outstanding principal amount of the Series 2014 Bonds were, in the future, less than one-third of the principal amount of all Obligations outstanding under the Master Indenture, the Bond Trustee could not, alone, prevent the retention of a Consultant objected to by the Bond Trustee.
For a description of the amendment provisions of the Bond Indenture, Lease, Sublease and Master Indenture, see APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Supplemental Master Indentures and Amendments to the Mortgage not Requiring Consent of Obligation Holders,” “– Supplemental Master Indentures and Amendment of the Mortgage Requiring Consent of Obligation Holders,” “Summary of Certain Provisions of the Bond Indenture – Supplemental Indentures Not Requiring Consent of Owners of Series 2014 Bonds,” "-Supplemental Indentures Requiring Consent of Owners of Series 2014 Bonds," "-Amendments to Lessee Documents Not Requiring Consent of Bondholders" and “–Amendments to the Lessee Documents Requiring Consent of Bondholders.”
Bankruptcy
If any Member of the Obligated Group were to file a petition for relief under Chapter 11 of the Federal Bankruptcy Code, its revenues and certain of its accounts receivable and other property acquired after the filing (and under certain conditions some or all thereof acquired within 120 days prior to the filing) would not be subject to the security interests created under the Master Indenture. The filing would operate as an automatic stay of the commencement or continuation of any judicial or other proceeding against such Member of the Obligated Group and its property and as an automatic stay of any act or proceeding to enforce a lien upon its property. If the bankruptcy court so ordered, such Member of the Obligated Group’s property, including its accounts receivable and proceeds thereof, could be used for the benefit of such Member of the Obligated Group despite the security interest of the Master Trustee therein, provided that “adequate protection” is given to the lienholder.
In a bankruptcy proceeding, the petitioner could file a plan for the adjustment of its debts which modifies the rights of creditors generally, or any class of creditors, secured or unsecured. The plan, when confirmed by the court, binds all creditors who had notice or knowledge of the plan and discharges all claims against the debtor provided for in the plan. No plan may be confirmed unless, among other conditions, the plan is in the best interests of creditors, is feasible and has been accepted by each class of claims impaired thereunder. Each class of claims has accepted the plan if at least two-thirds in dollar amount and more than one-half in number of the allowed claims of the class that are voted with respect to the plan are cast in its favor. Even if the plan is not so accepted, it may be confirmed if the court finds that the plan is fair and equitable with respect to each class of non-accepting creditors impaired thereunder and does not discriminate unfairly in favor of junior creditors.
Additional Debt
The Master Indenture permits the Obligated Group to incur Additional Indebtedness which may be equally and ratably secured with the Initial Master Notes, including the Series 2014 Note. Any such additional parity indebtedness would be entitled to share ratably in security interest with the owners of the Initial Master Notes, including the Series 2014 Note. Any moneys realized from the exercise of remedies in the event of a default by the Obligated Group could reduce the Historical Maximum Annual Debt
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Service Coverage Ratio and could impair the ability of the Obligated Group to maintain its compliance with certain covenants described in APPENDIX C under the caption “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Rates and Charges" and " – Liquidity Covenant.” There is no assurance that, despite compliance with the conditions upon which Additional Indebtedness may be incurred at the time such debt is created, the ability of the Obligated Group to make the necessary payments to repay the Series 2014 Note may not be materially, adversely affected upon the incurrence of Additional Indebtedness.
The Obligated Group has recently developed a 5-year Master Plan, which plan includes several capital projects with an aggregate total cost of $40-$60 million. Such additional projects are expected to be financed with a combination of available Corporation funds, new entrance fee revenue derived from such additional projects currently projected by Corporation management to be $25-$30 million, additional borrowings and fundraising. The amount of indebtedness that may be incurred as part of the implementation of the Master Plan, or the availability of debt financing to the Obligated Group at attractive rates and terms, cannot be determined at this time. For additional information regarding the Obligated Group’s Master Plan, see “SELECTED UTILIZATION AND FINANCIAL INFORMATION - Future Plans –Borrower’s Master Plan” in APPENDIX A hereto.
Certain Matters Relating to Enforceability of the Master Indenture
The obligations of the Obligated Group under the Series 2014 Note will be limited to the same extent as the obligations of debtors typically are affected by bankruptcy, insolvency and the application of general principles of creditors’ rights generally and as additionally described below.
The accounts of the Obligated Group will be combined for financial reporting purposes and will be used in determining whether various covenants and tests contained in the Master Indenture (including tests relating to the incurrence of Additional Indebtedness) are met, notwithstanding the uncertainties as to the enforceability of certain obligations of the Obligated Group contained in the Master Indenture which bear on the availability of the assets and revenues of the Obligated Group to pay debt service on Obligations, including the Series 2014 Note pledged under the Bond Indenture as security for the Series 2014 Bonds. The obligations described herein of the Obligated Group to make payments of debt service on Obligations issued under the Master Indenture (including transfers in connection with voluntary dissolution or liquidation) may not be enforceable to the extent (1) enforceability may be limited by applicable bankruptcy, moratorium, reorganization or similar laws affecting the enforcement of creditors’ rights and by general equitable principles and (2) such payments (i) are requested with respect to payments on any Obligation issued by a Member other than the Member from which such payment is requested, issued for a purpose which is not consistent with the charitable purposes of the Member of the Obligated Group from which such payment is requested or issued for the benefit of a Member of the Obligated Group which is not a Tax-Exempt Organization; (ii) are requested to be made from any moneys or assets which are donor-restricted or which are subject to a direct or express trust which does not permit the use of such moneys or assets for such a payment; (iii) would result in the cessation or discontinuation of any material portion of the healthcare or related services previously provided by the Member of the Obligated Group from which such payment is requested; or (iv) are requested to be made pursuant to any loan violating applicable usury laws. The extent to which the assets of any future Member of the Obligated Group may fall within the categories (ii) and (iii) above with respect to the Series 2014 Note cannot now be determined. The amount of such assets which could fall within such categories could be substantial.
A Member of the Obligated Group may not be required to make any payment on any Obligation, or portion thereof, the proceeds of which were not loaned or otherwise disbursed to such Member of the Obligated Group to the extent that such payment would render such Member of the Obligated Group
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insolvent or which would conflict with or not be permitted by or which is subject to recovery for the benefit of other creditors of such member of the Obligated Group under applicable laws. There is no clear precedent in the law as to whether such payments from a Member of the Obligated Group in order to pay debt service on the Series 2014 Note may be voided by a trustee in bankruptcy in the event of bankruptcy of a Member of the Obligated Group, or by third-party creditors in an action brought pursuant to Ohio fraudulent conveyance statutes. Under the United States Bankruptcy Code, a trustee in bankruptcy and, under Ohio fraudulent transfer statutes, a creditor of a related guarantor, may avoid any obligation incurred by a related guarantor if, among other bases therefor, the guarantor has not received fair consideration or reasonably equivalent value in exchange for the guaranty and any of the following circumstances exist: (i) the guaranty renders the guarantor insolvent, as defined in the United States Bankruptcy Code or Ohio fraudulent transfer statutes; (ii) at the time of delivering the guaranty, the guarantor was engaged or was about to engage in a business or a transaction for which the remaining assets of the guarantor were unreasonably small in relation to the business or transaction; or (iii) at the time of delivering the guaranty, the guarantor intended to incur, or believed or reasonably should have believed that the guarantor would incur, debts beyond the guarantor's ability to pay as they became due.
Application by courts of the tests of “insolvency,” “reasonably equivalent value” and “fair consideration” has resulted in a conflicting body of case law. It is possible that, in an action to force a Member of the Obligated Group to pay debt service on an Obligation for which it was not the direct beneficiary, a court might not enforce such a payment in the event it is determined that the Member of the Obligated Group is analogous to a guarantor of the debt of the Member of the Obligated Group who directly benefited from the borrowing and that sufficient consideration for such Member’s guaranty was not received and that the incurrence of such Obligation has rendered or will render the Member of the Obligated Group insolvent.
The effectiveness of the security interest in the Obligated Group’s Gross Revenues granted in the Master Indenture may be limited by a number of factors, including: (i) present or future prohibitions against assignment contained in any applicable statutes or regulations; (ii) certain judicial decisions which cast doubt upon the right of the Master Trustee, in the event of the bankruptcy of any Member of the Obligated Group, to collect and retain accounts receivable from Medicare, Medicaid, General Assistance and other governmental programs; (iii) commingling of the proceeds of Gross Revenues with other moneys of a Member of the Obligated Group not subject to the security interest in Gross Revenues; (iv) statutory liens; (v) rights arising in favor of the United States of America or any agency thereof; (vi) constructive trusts, equitable or other rights impressed or conferred by a federal or state court in the exercise of its equitable jurisdiction; (vii) federal bankruptcy laws which may affect the enforceability of the Mortgage or the security interest in the Gross Revenues of the Obligated Group which are earned by the Obligated Group within 90 days preceding or, in certain circumstances with respect to related corporations, within one year preceding and after any effectual institution of bankruptcy proceedings by or against a Member of the Obligated Group; (viii) rights of third parties in Gross Revenues converted to cash and not in the possession of the Master Trustee; and (ix) claims that might arise if appropriate financing or continuation statements are not filed in accordance with the Ohio Uniform Commercial Code as from time to time in effect.
Pursuant to the Master Indenture, each Member of the Obligated Group that pledges its Gross Revenues under the Master Indenture covenants and agrees that, if an event of default involving a failure to pay any installment of interest or principal on an Obligation should occur and be continuing, it will deposit daily the proceeds of its Gross Revenues. Such deposits will continue daily until such default is cured.
It is unclear whether the covenant to deposit the proceeds of Gross Revenues with the Master Trustee is enforceable. In light of the foregoing and of questions as to limitations on the effectiveness of
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the security interest granted in such Gross Revenues, as described above, no opinion will be expressed by counsel to the Corporation as to enforceability of such covenant with respect to the required deposits.
There exists, in addition to the foregoing, common law authority and authority under Ohio statutes pursuant to which the Ohio courts may terminate the existence of a nonprofit corporation or undertake supervision of its affairs on various grounds, including a finding that such corporation has insufficient assets to carry out its stated charitable purposes or has taken some action which renders it unable to carry out such purposes. Such court action may arise on the court’s own motion pursuant to a petition of the Ohio Attorney General or such other persons who have interests different from those of the general public, pursuant to the common law and statutory power to enforce charitable trusts and to see to the application of their funds to their intended charitable uses.
Impact of Disruptions in the Credit Markets and General Economic Factors
The domestic and international financial crises of recent years has had, and may continue to have, negative repercussions upon the global, national and Ohio economies, including a scarcity of credit, lack of confidence in the financial sector, extreme volatility in the financial markets, increase in interest rates, reduced business activity, increased consumer bankruptcies and increased business failures and bankruptcies. The Federal Reserve Board and other agencies of the federal government and foreign governments took action designed to enhance liquidity, improve the performance and efficiency of credit markets and generally stabilize securities markets.
As the domestic and international financial crises have ebbed, the Federal Reserve Board has reversed some of its earlier actions designed to enhance liquidity and stability in financial markets, such as scaling back its mortgage-backed bond buying program. In addition, in response to the disruption in the markets caused by the financial crises, in 2010 Congress enacted and the President approved the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act"). Additional legislation is under active consideration by Congress and regulatory action is being considered by various federal agencies, the Federal Reserve Board and foreign governments which legislation is intended to increase the regulation of financial institutions ad domestic and global credit and securities markets. It is widely expected that one consequence of these actions could be to generally raise the level of short-term and long-term interest rates. In response to statutory or regulatory efforts to increase capital reserve requirements on banks and other financial institutions, such banks and financial institutions may reduce lending, or may discontinue providing certain financial products such as letters of credit. The Federal Reserve Board is also widely expected to take action to increase short-term interest rates in the near future, although the precise timing and amount of any such increase(s) cannot be predicted. The effects of these legislative regulatory and other governmental actions, including the Dodd-Frank Act, upon the Members of the Obligated Group and, in particular, upon their access to Bank-Credit (as defined below under "Risks Inherent in Bank-Credit"), capital markets and their investment portfolios, cannot be predicted.
The financial crises have had a particularly acute impact upon the financial sector in recent years, and has caused many banks and other financial institutions to seek additional capital, to merge, and in some cases, to fail. Additionally, substantial amounts have been withdrawn from tax-exempt money market funds, one of the largest purchasers of variable rate tax-exempt bonds such as the Corporation's Series 2004A Bonds. A continued weakening or delayed recovery of the economy could have a material adverse effect upon the Obligated Group.
The Corporation has significant holdings in a broad range of investments. Market fluctuations have affected and will continue to affect materially the value of those investments and those fluctuations may be and historically have been material. Investment income (including both realized and unrealized
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gains on investments) has contributed significantly to the Corporation’s financial results over recent years. Future market fluctuations may have a material positive or negative effect on the Corporation’s financial results.
For many years, health care providers have been under increasing economic pressure from various third-party payors, both governmental (particularly Medicare and Medicaid) and private (e.g., health insurance companies). Shifts in third-party payor policies and the need for providers to adapt to changing and complex payment arrangements have had and will continue to have a significant impact upon the economic performance of the Obligated Group. The financial condition of the Obligated Group is also threatened by particular pressures resulting from the current economic environment and the recent financial crisis, including risks of: increased inflation; increased pressure on the federal government to decrease Medicare funding, on the federal and state governments to decrease Medicaid funding and on employers to reduce healthcare coverage and increase deductibles; increased unemployment, uncompensated care and bad debt; and decrease in return on investments. These developments may have a material adverse impact on the Obligated Group.
Risks Inherent in Bank-Credit
In the future, the Obligated Group may incur additional indebtedness through direct loans from banks, by banks providing letters of credit securing variable rate indebtedness, or through banks purchasing taxable or tax-exempt bonds issued for the benefit of the Obligated Group (collectively, “Bank-Credit”),
Bank-Credit exposes the Obligated Group to certain risks, including:
• To the extent the Bank-Credit bears interest at variable rates, or bears interest at rates that are redetermined periodically, such bonds present “interest rate risk” – the risk that the interest rates on the Bank-Credit and/or annual bank fees will increase.
• To the extent the Bank-Credit is subject by its terms to optional or mandatory tender by the holder, such bonds present “remarketing risk” – the risk that the Obligated Group will not be able to remarket or resell the bonds on the tender dates, which could occur as a result of general market conditions or disruptions, a material adverse change in the Obligated Group’s financial condition (e.g., evidenced by a reduction in its long-term debt ratings).
• “Liquidity risk” – the risk that the Obligated Group will be required to purchase the Bank-Credit in the event the bonds cannot be resold or remarketed after being tendered.
• “Renewal risk” – Bank-Credit with banks for specified holding periods may bear interest at a variable rate plus a fixed spread or a fixed rate (subject to any required interest rate hedge agreements), and may be subject to mandatory tender at the end of the specified holding periods.
Because Bank-Credit may be subject to tender at the ends of the specified holding periods, the Obligated Group may be required to periodically extend the existing bank’s holding period or find a replacement bank. To manage bank renewal risk, the Obligated Group may be required to seek to renew or replace bank purchases as far in advance as reasonable of stated holding periods. No assurance can be given that the Obligated Group would be able to renew or replace bank purchases on reasonable terms. Bank-
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Credit may also be subject to optional tender by the holders or acceleration upon the occurrence of an “event of default” under the applicable bank agreement.
If the Bank-Credit are tendered and cannot be remarketed and the Obligated Group has insufficient resources to purchase the Bank-Credit, they could bear interest at higher rates and will be subject to repayment on an accelerated basis until they can be purchased or remarketed. There is no assurance that any Bank-Credit would be able to be remarketed or resold after they are tendered by the holders of such Bank-Credit.
• Bank-Credit transactions typically provide for a significantly longer principal amortization period for the underlying debt than the period of the bank's commitment – for example, a 30-year bond issue may be secured with a letter of credit with a term of 5 years or less, or a specified holding period for a direct purchase transaction may be significantly shorter than the final maturity of such debt. Such long-term debt with an underlying short-term Bank-Credit arrangement presents "renewal risk" as described above, in that a borrower would need to extend a Bank-Credit arrangement on new terms or refinance, all at then-current market rates.
• Bank-Credit agreements typically provide for different, and in many cases, more restrictive financial covenants and default and remedies provisions than is customary for long-term, fixed rate bond financings. Bank-Credit agreements typically also provide for special rights of the bank, including consent rights to additional debt and amendments to any of the borrower's debt documents.
• “Cross-default risk” – like other obligations secured by Master Indenture Obligations, there is a risk that an event of default under the applicable bank agreements governing the Bank-Credit during the period such bonds are held by banks as the purchasers thereof could cause an Event of Default under the Master Indenture.
Creditworthiness of Banks; Renewal Risk
The payment of principal of, interest on and the purchase price of the Series 2004A Bonds is secured by a letter of credit. Letters of credit typically are issued or renewed for periods of one to five years, often considerably shorter than the period the underlying debt is intended to be outstanding. The letter of credit relating to the Series 2004A Bonds currently has an expiration date of July 15, 2018; the Series 2004A Bonds have a final maturity date of November 1, 2022. Payment of debt service on the Series 2004A Bonds by the letter of credit bank will depend on the creditworthiness of the bank providing such letter of credit. There can be no assurance that such bank will maintain its present financial condition or that an adverse change in such condition will not adversely affect its ability to honor draws under the letters of credit. Moreover, if the credit ratings for such bank are lowered, those downgrades could result in a higher interest rate on the Series 2004A Bonds. In addition, unless extended, such letter of credit will expire pursuant to its terms and if extended, such extension could be subject to higher letter of credit fees. In the event that the bank providing such letter of credit declines to extend the terms of the letter of credit and an alternate credit facility cannot be obtained, the Series 2004A Bonds will be subject to mandatory purchase or redemption, and the Obligated Group could be adversely affected.
Risks Related to Series 2004A Bonds and Other Variable Rate Obligations; Interest Rate Swaps and Other Hedge Risk
Variable Rate Risk. The Series 2004A Bonds, payment of which is secured by the Series 2004A Note, are variable rate obligations, the interest rate on which changes weekly. Thus, the interest rate on
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the Series 2004A Bonds could increase. Thus, with respect to the Series 2004A Bonds, the Corporation is subject to the risks described above under "Risks Inherent in Bank-Credit" and "Creditworthiness of Banks; Renewal Risk". In the future one or more Members of the Obligated Group could enter into additional variable rate debt obligations, the interest rates on which could rise. As discussed above, in recent years the U.S. financial markets have experienced significant turmoil, including dislocations in the hospital, healthcare and home health tax-exempt bond markets.
Bank Has More Restrictive Covenants. Under the 2004 Reimbursement Agreement, the Corporation has agreed to additional, different and/or more restrictive covenants, in favor of the Bank, than the covenants in the Master Indenture. For a summary of certain such covenants, and the default and remedy provisions in the 2004 Reimbursement Agreement, see “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the 2004 Reimbursement Agreement” in APPENDIX C.
Interest Rate Swap Risk. To hedge its variable interest rate risk with respect to the Series 2004A Bonds, the Corporation has entered into an interest rate swap transaction with a counterparty (the “2004A Swap”). The current notional amount of the 2004A Swap is the same as the current outstanding principal amount of the Series 2004A Bonds, and the termination date of the 2004A Swap is November 1, 2022, which is also the final maturity date of the Series 2004A Bonds. Under the 2004A Swap, the Corporation pays a fixed amount and receives from the swap counterparty a variable amount based upon a variable index or interest rate, not the actual variable rate payable on the Series 2004A Bonds. Depending upon future performance of this variable index or interest rate, it is possible that the combined actual variable rate payable on the Series 2004A Bonds could exceed the variable index or interest rate received pursuant to the 2004A Swap. The Corporation’s payment obligations under the 2004A Swap are general, unsecured obligations of the Corporation, and are not secured by an Obligation issued under the Master Indenture.
Any Member of the Obligated Group may also enter into one or more interest rate swap or other hedge agreements in the future. Any interest rate swap or other hedge agreement to which any Member of the Obligated Group is a party would be subject to periodic “mark-to-market” valuations and may, at any time, have a negative value to the Obligated Group. As of September 30, 2014, the 2004A Swap had an aggregate negative termination value of approximately $725,309. If either a swap or other hedge counterparty or the Corporation or any future Member of the Obligated Group terminates such an agreement when the agreement has a negative value to the Obligated Group, the Obligated Group would be obligated to make a termination payment to the counterparty in the amount of such negative value, and such payment could be substantial and potentially materially adverse to the financial condition of the Obligated Group. A counterparty generally may only terminate such an agreement upon the occurrence of defined termination events such as nonpayment by the Obligated Group, a bankruptcy type event, cross default to specified indebtedness or other swaps, other breaches of covenants in such agreements or the withdrawal of the ratings assigned to the Obligated Group’s indebtedness or a downgrade of such ratings below specified levels. In addition, interest rate swaps, which are now in relatively common use in the tax-exempt bond markets, have experienced unexpected negative trading patterns, causing many to cease to function effectively to hedge variable rate exposure.
Many swap agreements require each party to provide additional security for its obligations, such as posting collateral in the form of cash of marketable investment securities, in certain circumstances including without limitation a downgrade of the rating assigned to the long-term Indebtedness issued on its behalf and the occurrence of certain other events. The Master Indenture permits the Obligated Group to grant a security interest and lien on collateral for this purpose. The 2004A Swap does not contain provisions that would require the Corporation to post collateral or other security with the swap counterparty upon the occurrence of certain events.
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In addition, any swap counterparty could become insolvent or otherwise unable to perform its obligations under a swap. Under certain circumstances, the swap could be terminated prior to its stated termination date. In recent years, some swap counterparties have become insolvent and swap agreements have been terminated prior to their stated termination dates. Because many of these swap agreements had a negative termination value to the non-defaulting borrower, the result of an early termination was that a termination payment was owed by the non-defaulting borrower to the defaulting swap counterparty. No assurance can be given that a swap agreement will continue to be in existence, and the Obligated Group could be adversely affected upon a termination of a swap agreement. Even if a swap agreement is not terminated, if the swap counterparty is unable to perform its obligations under its swap agreement, the Obligated Group could be negatively impacted.
Environmental Matters
In its role as the owner and operator of properties or facilities, the Obligated Group may be subject to liability and practical, financial and legal risks for investigating and remedying any hazardous substances that exist on its property or that may have migrated off of its property. Such risks may (a) result in damage to individuals, property or the environment, (b) interrupt operations and increase their cost, (c) result in legal liability, damages, injunctions or fines and (d) result in investigations, administrative proceedings, penalties or other governmental agency actions. There is no assurance that the Obligated Group will not encounter such risks in the future, and such risks may result in material adverse consequences to the operations or financial condition of the Obligated Group.
At the present time, and based on environmental assessments previously performed on the property on which the Facilities are located, management of the Corporation is not aware of any pending or threatened claim, investigation or enforcement action regarding such environmental issues which, if determined adversely to the Obligated Group, would have a material adverse effect on its operations or financial condition.
Factors Affecting Real Estate Taxes
In recent years various State and local legislative, regulatory and judicial bodies have reviewed the exemption of non-profit corporations from real estate taxes. Various State and local government bodies have challenged with increasing frequency and success the tax-exempt status of such institutions and have sought to remove the exemption of property from real estate taxes of part or all of the property of various non-profit institutions on the grounds that a portion of such property was not being used to further the charitable purposes of the Obligated Group. Several of these disputes have been determined in favor of the taxing authorities or have resulted in settlements.
The Facility is currently partially exempt from the payment of property taxes and the Facility is assumed by management of the Obligated Group to remain partially exempt. There can be no assurance that future changes in the laws and regulations of State or local governments will not materially and adversely affect the operation and revenues of the Obligated Group by requiring the Obligated Group to pay additional real estate taxes for the Facility.
Change in Accounting Principles
Financial and other covenants in the Master Indenture are based on generally accepted accounting principles ("GAAP") in the United States of America in effect from time to time. GAAP standards are established and administered by the American Institute of Certified Public Accountants and the Financial Accounting Standards Board. Many countries use or are converging on the International Financial Reporting Standards (IFRS) that was established and is maintained by the International Accounting
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Standards Board. In the United States, the Securities and Exchange Commission has stated that it eventually intends to move from GAAP to IFRS.
If GAAP were to change, either as part of a transition to IFRS or otherwise, such changes could have adverse consequences to the Obligated Group under the Master Indenture. For example, one potential change to GAAP would treat all leases currently characterized as operating leases, as capitalized leases. Such a change would result in operating leases being treated as "Indebtedness" under the Master Indenture, which would increase the Obligated Group's total Indebtedness and lower its debt service coverage ratios. The Master Indenture does not "grandfather" current GAAP, nor does it provide for revised accounting terms or financial covenants in the event of a change in GAAP. In the event of a change in GAAP that would have significant adverse consequences to the Obligated Group, the Obligated Group may need to amend the Master Indenture, the provisions for which are described in APPENDIX C – “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Supplemental Master Indentures and Amendments to the Mortgage not Requiring Consent of Obligation Holders” and “– Supplemental Master Indentures and Amendment of the Mortgage Requiring Consent of Obligation Holders”.
Rights of Holders of Accelerable Instruments Under Master Indenture
Under the Master Indenture, an Obligation may be issued as an "Accelerable Instrument", which is defined in the Master Indenture to be "any Obligation or any mortgage, indenture, lease or other instrument under which there has been issued or incurred, or by which there is secured, any Indebtedness evidenced by an Obligation, which Obligation or instrument provides that, upon the occurrence of an event of default under such Obligation or instrument, the holder thereof may request that the Master Trustee declare such Obligation or Indebtedness due and payable prior to the date on which it would otherwise become due and payable; provided that an Accelerable Instrument must have an original principal amount of at least $5,000,000".
Under the Master Indenture, if an event of default has occurred and is continuing, the Master Trustee shall, if requested by the holder of any Accelerable Instrument under which Accelerable Instrument an event of default exists, shall, by notice in writing delivered to the Obligated Group Agent, declare the entire principal amount of all Obligations then Outstanding and the interest accrued thereon immediately due and payable. However, such acceleration of all Obligations then Outstanding can be rescinded by the holders of a majority in aggregate principal amount of the Obligations then Outstanding. Unless such a rescission occurs, though, a holder of a minority in aggregate principal amount of the Obligations then Outstanding has the ability to cause the acceleration of all Obligations then Outstanding, including the Series 2014 Note.
The Series 2014 Note is an Accelerable Instrument. Neither the Series 2004A Note nor the Series 2004A LOC Note is an Accelerable Instrument. There are no restrictions in the Master Indenture on the ability of the Members of the Obligated Group to issue one or more Obligations as Accelerable Instruments in the future.
Mortgaged Property
The Mortgaged Property is not comprised of general purpose buildings and generally would not be suitable for industrial or commercial use. Consequently, it could be difficult to find a buyer for the Mortgaged Property and, in the event of the institution of bankruptcy proceedings, the estate in bankruptcy may not realize the full highest use value or the amount of the outstanding Series 2014 Bonds from the disposition of the Mortgaged Property. Upon an event of default, no assurance can be given that the Master Trustee will be able to lease or sell the Mortgaged Property to third parties, or that the amount
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the Master Trustee would be able to receive upon foreclosure would be sufficient to pay all principal of, premium, if any, and interest on the Series 2014 Bonds, the Series 2004A Bonds and any other Obligations issued under the Master Indenture and secured by the Mortgaged Property. While, generally, under current law the Master Trustee would not be required to obtain a certificate of need and other regulatory approvals prior to a disposition of the Mortgaged Property to another party, a certificate of need would need to be obtained prior to the relocation of any long-term care beds to another facility. No assurance can be given that such approval would be obtained
The Corporation will deliver a mortgagee title insurance policy for the Mortgaged Property on the date of issuance of the Series 2014 Bonds, with the Master Trustee being the named insured. In the event of any defect in title, the ownership by the Corporation of all or a portion of the Mortgaged Property may be called into question, which could lead to litigation concerning rightful ownership or other rights with respect to such property, including the rights contained in the Mortgage. Loss of such litigation by the Corporation could reduce the market value of the Mortgaged Property, including, in the event of ejectment from such property, an elimination of such value. Although any such potential losses are intended to be covered by the title policy, (i) the title policy will be for an amount of $21,090,600, which is less than the initial aggregate principal amount of the Initial Master Notes and (ii) there is no requirement in the Master Indenture or the Sublease for additional mortgage title insurance to be obtained in connection with the incurrence by the Obligated Group of any Additional Indebtedness secured by Obligations issued under the Master Indenture. Because the amount of the initial title policy is less than the aggregate principal amount of the Initial Master Notes, in the event of a claim under the initial title policy, any proceeds from a claim would be applied on a ratable basis pursuant to the terms of the Master Indenture. Similarly, if Additional Indebtedness secured by Obligations issued under the Master Indenture was incurred and additional title insurance was not obtained, or obtained in an amount less than the amount of such Additional Indebtedness, in the event of a claim under any title policy then in effect, any proceeds from a claim would be disbursed to the Master Trustee for the benefit of the holders of all outstanding Obligations on a ratable basis pursuant to the terms of the Master Indenture. In either such event, any proceeds from a claim under any title policy may be insufficient to pay all amounts due under all outstanding Obligations, including but not limited to the Initial Master Notes.
Rating on the Series 2014 Bonds; Market for Series 2014 Bonds
While the Series 2014 Bonds have received a rating by a recognized ratings agency, such rating is not a recommendation to buy, hold or sell the Series 2014 Bonds. There is no assurance that such rating will continue for any given period of time or that such rating will not be revised downward or withdrawn entirely by such rating agency. Any such downward revision or withdrawal of the rating can be expected to have an adverse effect on the market price for and marketability of the Series 2014 Bonds.
Although the Underwriter intends to maintain a secondary market for the Series 2014 Bonds, it is under no obligation to do so. See “RATING” herein.
Other Possible Risk Factors
The occurrence of any of the following events, or other unanticipated events, could adversely affect the operations of the Obligated Group:
• Inability to control increases in operating costs, including salaries, wages and fringe benefits, supplies and other expenses, given an inability to obtain corresponding increases in revenues from residents whose incomes will largely be fixed;
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• Unionization, employee strikes and other adverse labor actions which could result in a substantial increase in expenditures without a corresponding increase in revenues;
• Adoption of other federal, state or local legislation or regulations having an adverse effect on the future operating or financial performance of the Obligated Group;
• A decline in the population, a change in the age composition of the population or a decline in the economic conditions of the market area of the Corporation;
• The cost and availability of energy;
• Increased unemployment or other adverse economic conditions in the service area of the Obligated Group which would increase the proportion of patients who are unable to pay fully for the cost of their care;
• Any increase in the quantity of indigent care provided which is mandated by law or required due to increased needs of the community in order to maintain the charitable status of the Obligated Group;
• Inflation or other adverse economic conditions;
• Changes in tax, pension, social security or other laws and regulations affecting the provisions of healthcare and other services to the elderly;
• Inability to control the diminution of patients’ assets or insurance coverage with the result that the patients’ charges are reimbursed from government reimbursement programs rather than private payments or funded from assets of the Obligated Group;
• The occurrence of natural disasters, including floods and earthquakes, which may damage the facilities of the Obligated Group, interrupt utility service to the facilities, or otherwise impair the operation and generation of revenues from said facilities; or
• Cost and availability of any insurance, such as malpractice, fire, automobile and general comprehensive liability, that organizations such as the Corporation generally carry.
FINANCIAL REPORTING AND CONTINUING DISCLOSURE
Financial Reporting
Under the Master Indenture, the Obligated Group Agent will furnish or cause to be furnished to, among others, the Master Trustee, the Underwriter, each Related Bond Trustee, EMMA (as described below) and any other municipal securities information repositories identified by the Securities and Exchange Commission and all owners of any Related Bonds who request such reports in writing (which written request shall include a certification as to such ownership) (the “Required Information Recipients”) the following:
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(i) As soon as practicable after it is available but in no event more than 60 days after the completion of each fiscal quarter, quarterly occupancy statistics and unaudited financial statements of the Obligated Group (including a report with respect to the fourth quarter of each Fiscal Year), including a combined or combining statement of revenues and expenses and a statement of cash flows of the Obligated Group during such period, and a combined or combining balance sheet as of the end of each such fiscal quarter with a comparison to the operating budget.
(ii) If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.00:1 or the Days Cash on Hand of the Obligated Group is less than the Liquidity Requirement for any Testing Date as provided in the Master Indenture, the Obligated Group will deliver the financial information and the calculations described in paragraph (i) above on a monthly basis with the Historical Debt Service Coverage Ratio calculated on a year-to-date basis each month, within 45 days of the end of each month until the Historical Debt Service Coverage Ratio of the Obligated Group is at least 1.00:1 and the Days Cash on Hand of the Obligated Group is at least equal to the Liquidity Requirement.
(iii) Within 150 days of the end of each Fiscal Year commencing with the Fiscal Year ending June 30, 2015, an annual financial report of the Obligated Group audited by a firm of certified public accountants, including a combined and an unaudited combining balance sheet as of the end of such Fiscal Year, a combined and an unaudited combining statement of changes in fund balances for such Fiscal Year and a combined and an unaudited combining statement of revenues and expenses for such Fiscal Year, showing in each case in comparative form the financial figures for the preceding Fiscal Year, together with a separate written statement of the accountants auditing such report containing calculations of the Obligated Group’s Historical Debt Service Coverage Ratio for said Fiscal Year and of the Obligated Group’s Days Cash on Hand as of the last day of such Fiscal Year and if such accountants shall have obtained knowledge of any default or defaults under the Master Indenture, they shall disclose in such statement the default or defaults and the nature thereof.
(iv) On or before the date of delivery of the financial reports referred to in subsection (iii) above, an Officer’s Certificate of the Obligated Group Agent (A) stating that the Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indenture or if not, specifying all such defaults and the nature thereof, (B) calculating and certifying the Historical Debt Service Coverage Ratio and Days Cash on Hand as of the end of such fiscal period or Fiscal Year, as appropriate, (C) commencing with the Fiscal Year ending June 30, 2015, a comparison of the audited financial statements with the operating budget for the preceding Fiscal Year, and (D) an executive summary of any actuarial studies received by the Obligated Group during the preceding Fiscal Year, if any, including any actuarial study required by the Master Indenture to be produced if the audited financial statements of the Obligated Group for any Fiscal Year show an increase in liabilities related to future service obligation, as described in “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Financial Statements and Related Matters” in APPENDIX C.
(v) At any time during the Fiscal Year, copies of any correspondence to or from the Internal Revenue Service questioning or contesting the status of a Member as an organization described in Section 501(c)(3) of the Code or with respect to the tax-exempt status of the Series 2014 Bonds or any Related Bonds the interest on which is excludable from the gross income of the owners thereof for federal income tax purposes, promptly upon receipt.
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Continuing Disclosure
General. Offerings of municipal securities must comply with the provisions of Rule 15c2-12 of the Securities and Exchange Commission (as amended from time to time, the “Rule”). Given that the Series 2014 Bonds are special and limited obligations of the Issuer, the Issuer has determined that no financial or operating data concerning the Issuer is material to any decision to purchase, hold or sell the Series 2014 Bonds, and the Issuer will not provide any such information. The Corporation (on behalf of itself and any other member of the Obligated Group) has undertaken all responsibilities for any continuing disclosure to holders of the Series 2014 Bonds as described below, and the Issuer shall have no liability to the holders or any other person with respect to such disclosures. None of the Members of the Obligated Group has previously entered, or been required to enter, into a continuing disclosure contact, agreement or undertaking pursuant to the Rule.
The Corporation (on behalf of itself and the other Members of the Obligated Group) has covenanted, pursuant to a Continuing Disclosure Undertaking (the “Disclosure Undertaking”), for the benefit of the Series 2014 Bondholders and the Beneficial Owners (as hereinafter defined under this caption), to provide or cause to be provided (i) on a quarterly basis, certain financial information for the Obligated Group (the “Quarterly Report”) by not later than the date 60 days after the last day of the fiscal quarter of the Obligated Group, commencing with the Quarterly Report for the quarter ended December 31, 2014; (ii) each year, certain financial information for the Obligated Group and operating data relating to the Obligated Group (the “Annual Report”) by not later than the date 150 days after the last day of the fiscal year of the Obligated Group, commencing with the Annual Report for the fiscal year ended June 30, 2015; provided, however, that if the audited financial statements of the Obligated Group are not available by such date, unaudited financial statements for such party will be included in the Quarterly Report or the Annual Report, as appropriate, and audited financial statements will be provided when and if available; and (iii) timely notices of the occurrence of certain enumerated events. Currently the fiscal year of the Obligated Group commences on July 1. “Beneficial Owners” means, under this caption only, any person which (a) has the power, directly or indirectly, to vote or consent with respect to, or to dispose of ownership of, any Series 2014 Bonds (including persons holding Bonds through nominees, depositories or other intermediaries), or (b) is treated as the owner of any Bonds for federal income tax purposes.
The information will be made available to holders of the Series 2014 Bonds through Electronic Municipal Markets Access (http://emma.msrb.org) (“EMMA”), the information repository of the Municipal Securities Rulemaking Board, to comply with the Rule. The monthly, quarterly and annual reports described above under “Financial Reporting” will be filed by or on behalf of the Obligated Group with EMMA, or such other information repository designated from time to time by the SEC, for so long as such monthly, quarterly and annual reports are required to be delivered under the Disclosure Undertaking. In addition, any notice of the following events will be filed with EMMA:
(1) Any delinquency in payment when due of any principal of, or interest on, the Series 2014 Bonds.
(2) Occurrence of any material Event of Default under and defined in the Bond Indenture (other than as described in clause (1) above).
(3) Any unscheduled draw on debt service reserves reflecting financial difficulties.
(4) Any unscheduled draw on credit enhancements reflecting financial difficulties.
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(5) Substitution of credit or liquidity providers or their failure to perform.
(6) Adverse tax opinions, the issuance by the Internal Revenue Service of proposed or final determinations of taxability, Notices of Proposed Issue (IRS Form 5701-TEB) or other material notices or determinations with respect to the tax status of the security, or other material events affecting the tax status of the Series 2014 Bonds.
(7) Material modification to rights of Bondholders.
(8) Material bond calls.
(9) Defeasance of the Series 2014 Bonds or any portion thereof.
(10) Material release, substitution, or sale of property securing repayment of the Series 2014 Bonds.
(11) Any change in the rating on the Series 2014 Bonds.
(12) Tender offers.
(13) Bankruptcy, insolvency, receivership, or similar proceedings of the Corporation.
(14) The consummation of a merger, consolidation or acquisition involving an Obligated Person, as defined in the Rule, or the sale of all or substantially all of the assets of an Obligated Person, other than in the ordinary course of business, the entry into a definitive agreement to undertake such an action or the termination of a definitive agreement relating to any such actions, other than pursuant to its terms, if material.
(15) Appointment of a successor or additional trustee, or the change of name of a trustee, if material.
(16) Any entrance by another entity into the Obligated Group or cessation of any Obligated Group Member from the Obligated Group;
(17) Any failure by the Corporation to make any filing required under this Disclosure Undertaking in a timely manner;
(18) Copies of any correspondence to or from the Internal Revenue Service questioning or contesting the status of any member of the Obligated Group as an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, or with respect to the tax-exempt status of the Series 2014 Bonds or any Related Bonds (as defined in the Master Indenture) the interest on which is excludable from the gross income of the owners thereof for federal income tax purposes;
(19) A copy of each Consultant’s (as defined in the Master Indenture) report or counsel’s opinion required to be prepared under the terms of the Master Indenture;
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(20) Copies of any revised debt service schedules and/or any material changes to any bank covenants, in each case relating to indebtedness of the Obligated Group held by a commercial bank or affiliate; and
(21) Any other listed events that are added to the Rule and applicable to the Series 2014 Bonds, or applicable to the Underwriter with respect to the Series 2014 Bonds, after the date of this Agreement.
If an event listed above (each a “Listed Event”) occurs and the Corporation determines that such Listed Event is material, or if there is no materiality requirement for such Listed Event, the Corporation shall file a notice of such occurrence with EMMA within 10 business days (within 45 days in the case of a Listed Event described in (20) above). Notice of Listed Events described in (8) and (9) above need not be given any earlier than the notice (if any) of the underlying event is given to affected Bondholders if it is required pursuant to the Master Indenture or the Bond Indenture, as applicable. If the Corporation fails to give notice as required under the Disclosure Undertaking, it is required to promptly file a notice of such failure to file with EMMA.
Annual Report. The Annual Report will contain or incorporate by reference at least the following items:
(a) An annual financial report of the Obligated Group for the fiscal year immediately preceding the due date of the Annual Report, audited by a firm of certified public accountants, including a combined and an unaudited combining balance sheet as of the end of such fiscal year, a combined and an unaudited combining statement of changes in fund balances for such fiscal year and a combined and an unaudited combining statement of revenues and expenses for such fiscal year, showing in each case in comparative form the financial figures for the preceding fiscal year, together with a separate written statement of the accountants auditing such report containing calculations of the Obligated Group’s Historical Debt Service Coverage Ratio for said fiscal year and of the Obligated Group’s Days Cash on Hand as of the last day of such fiscal year and, if such accountants shall have obtained knowledge of any default or defaults under the Master Indenture, they shall disclose in such statement the default or defaults and the nature thereof; provided, however, that if such audited financial statements are not available by the deadline for filing the Annual Report, they shall be provided when and if available, and unaudited financial statements shall be included in the Annual Report. The financial statements shall be prepared in accordance with generally accepted accounting principles and shall be audited by an independent certified public accountant.
(b) An Officer’s Certificate of the Obligated Group Agent (A) stating that the Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indenture or if not, specify all such defaults and the nature thereof, (B) calculating and certifying the Historical Debt Service Coverage Ratio and Days Cash on Hand as of the end of such fiscal period or fiscal year, as appropriate, (C) commencing with the fiscal year ending June 30, 2015, a comparison of the audited financial statements with the operating budget for the preceding fiscal year, (D) an executive summary of any actuarial studies received by the Obligated Group during the preceding fiscal year, if any and (E) the current “star” rating from the Centers for Medicare and Medicaid Services.
(c) An update of the information included in APPENDIX A to this Official Statement under the captions "THE MANAGER – Life Care Services, LLC - The Management Agreement", "THE FACILITY " and "SELECTED UTILIZATION AND FINANCIAL INFORMATION".
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Quarterly Reports. Quarterly Reports will be provided within 60 days after the end of each quarterly fiscal period of each Fiscal Year, which Quarterly Reports will contain shall contain (i) occupancy statistics (with separate statistics for the memory support units and the assisted living units) and unaudited financial statements of the Obligated Group (including a report with respect to the fourth quarter of each fiscal year) for that period, including a combined or combining statement of revenues and expenses and statement of cash flows of the Obligated Group during such period and a combined or combining balance sheet as of the end of each such fiscal quarter with a comparison to the operating budget, (ii) for each material construction project, a project construction status report, including a general statement of work completed to date, remaining work to be completed, estimated percentage completed, total amount disbursed for project costs, remaining construction budget, any material change orders or other change in scope of the project and estimated completion date, (iii) payor mix statistics for the Corporation’s skilled nursing facility for that period, (iv) calculations of (A) the Historical Debt Service Coverage Ratio calculated on a year-to-date basis each quarter and (B) the Days Cash on Hand as of the end of such fiscal quarter and (v) for the fourth fiscal quarter in each Fiscal Year, commencing with the fiscal quarter ending June 30, 2015, the final operating budget for the next Fiscal Year.
Any or all of the items listed above may be included by specific reference to other documents which previously have been provided to EMMA or the SEC. If the document included by reference is a final official statement, it must be available from the Municipal Securities Rulemaking Board. The Corporation shall clearly identify each such other document as included by reference.
Failure to Comply. In the event of a failure of the Corporation to comply with any provision of the Disclosure Undertaking, any Series 2014 Bondholder or Beneficial Owner may take such actions as may be necessary and appropriate, including seeking specific performance by court order, to cause the Corporation to comply with the obligations under the Disclosure Undertaking. A failure to comply with the Disclosure Undertaking shall not be deemed an Event of Default under the Bond Indenture, the Master Indenture or the Sublease. The sole remedy under the Disclosure Undertaking in the event of any failure of the Corporation to comply with the Disclosure Undertaking shall be an action to compel performance, and no person or entity shall be entitled to recover monetary damage thereunder under any circumstances.
Amendment of the Disclosure Undertaking. The Corporation may amend the Disclosure Undertaking if such amendment or waiver is supported by an opinion of counsel expert in federal securities laws, to the effect that such amendment or waiver would not, in and of itself, cause the undertakings herein to violate the Rule if such amendment or waiver had been effective on the date hereof but taking into account any subsequent change in or official interpretation of the Rule or adjudication of the Rule by a final decision of a court of competent jurisdiction. The Corporation may modify from time to time the specific types of information provided in an Annual Report to the extent necessary as a result of a change in legal requirements, change in law or change in the nature of the Obligated Group or its businesses, provided that any such modification will be done in a manner consistent with the Rule and will not materially impair the interests of the Series 2014 Bondholders.
LITIGATION
The Issuer
There is not now pending (as to which the Issuer has received service of process) or, to the actual knowledge of the Issuer, threatened, any litigation against the Issuer restraining or enjoining the issuance or delivery of the Series 2014 Bonds or questioning or affecting the validity of the Series 2014 Bonds or the proceedings or authority under which the Series 2014 Bonds are to be issued. Neither the creation,
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organization or existence of the Issuer nor the title of any of the present members or other officers of the Issuer to their respective offices is being contested. There is no litigation against the Issuer pending (as to which the Issuer has received service of process) or, to the actual knowledge of the Issuer, threatened against the Issuer which in any manner questions the right of the Issuer to enter into the Bond Indenture, the Lease, the Sublease or the Bond Purchase Agreement or to secure the Series 2014 Bonds in the manner provided in the Bond Indenture and the Act.
The Obligated Group
The Obligated Group has advised that no litigation, proceedings or investigations are pending or, to their knowledge, threatened against it except (i) litigation, proceedings or investigations in which the probable ultimate recoveries and the estimated costs and expenses of defense, in the opinion of management, will be entirely within the applicable insurance policy limits (subject to applicable deductibles) or are not in excess of the total reserves held under the applicable self-insurance program, or (ii) litigation, proceedings or investigations which if adversely determined will not, in the opinion of management, have a material adverse effect on the operations or condition, financial or otherwise, of the Obligated Group. The Obligated Group also has advised that there is no litigation pending or, to the knowledge of the Obligated Group, threatened, which in any manner questions the right of the Obligated Group to enter into the financing described herein.
On April 11, 2014, the Ohio Attorney General's Office issued an Investigative Demand on the Corporation, pursuant to Chapter 1331 of the Ohio Revised Code, to determine whether a conspiracy existed in the provision of assisted living, memory care and skilled nursing services to Ohio senior citizens. See – "BONDHOLDERS' RISKS - Ohio Attorney General Inquiry".
LEGAL MATTERS
All legal matters incidental to the authorization and issuance of the Series 2014 Bonds by the Issuer are subject to the approval of Peck, Shaffer & Williams, a Division of Dinsmore & Shohl LLP, Columbus, Ohio, Bond Counsel. Certain legal matters with respect to the Series 2014 Bonds will be passed upon for the Underwriter by its counsel, Ice Miller LLP, and for the Obligated Group by its special counsel, Vorys, Sater, Seymour and Pease LLP.
The various legal opinions to be delivered concurrently with the delivery of the Series 2014 Bonds will speak only as of their dates of delivery and will be qualified in certain customary respects, including as to the enforceability of the various legal instruments by limitations imposed by state and federal law affecting remedies and by bankruptcy, insolvency, reorganization, arrangement, fraudulent conveyance, moratorium and other laws relating to or affecting creditors' rights, the application of equitable principles and the exercise of judicial discretion in appropriate cases. The legal opinions express the professional judgment of counsel rendering them, but are not binding on any court or other governmental agency and are not guarantees of a particular result.
CERTAIN RELATIONSHIPS
U.S. Bank National Association is acting as the Bond Trustee and the Master Trustee with respect to the Series 2014 Bonds. Peck, Shaffer & Williams, a Division of Dinsmore & Shohl LLP, is serving as bond counsel to the Issuer, and has also served as counsel to the Underwriter on unrelated bond financings. Peck, Shaffer & Williams, a Division of Dinsmore & Shohl LLP is also serving as counsel to PNC Bank, National Association, the issuer of the letter of credit for the Series 2004A Bonds, in
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connection with certain amendments to the 2004A Reimbursement Agreement being made in conjunction with the issuance of the Series 2014 Bonds and delivery of the Series 2004A LOC Note. Ice Miller LLP, counsel to the Underwriter in connection with the issuance of the Series 2014 Bonds, has also served, and may serve in the future, as counsel to the Bond Trustee and as bond counsel to the Issuer on unrelated bond financings. The Chair of the Hospital Commission is a partner in the law firm of Vorys, Sater, Seymour and Pease LLP, which firm is serving as special counsel to the Obligated Group.
TAX MATTERS
In the opinion of Peck, Shaffer & Williams, a Division of Dinsmore & Shohl LLP, Bond Counsel for the Series 2014 Bonds, based upon an analysis of existing laws, regulations, rulings and court decisions, interest on the Series 2014 Bonds will be excludible from gross income for federal income tax purposes. Bond Counsel for the Series 2014 Bonds is also of the opinion that interest on the Series 2014 Bonds will not be a specific item of tax preference under Section 57 of the Code, for purposes of the federal individual or corporate alternative minimum taxes. Furthermore, Bond Counsel for the Series 2014 Bonds is of the opinion that the Series 2014 Bonds, the transfer thereof, and the income therefrom, including any profit made on the sale thereof, are exempt from taxation within the State of Ohio.
The form of the opinion of Bond Counsel for the Series 2014 Bonds is set forth in APPENDIX D.
The Code imposes various restrictions, conditions and requirements relating to the exclusion from gross income for federal income tax purposes of interest on obligations such as the Series 2014 Bonds. Each of the Issuer and the Corporation has covenanted to comply with certain restrictions designed to ensure that interest on the Series 2014 Bonds will not be includible in gross income for federal income tax purposes. Failure to comply with these covenants could result in interest on the Series 2014 Bonds being includible in gross income for federal income tax purposes and such inclusion could be required retroactively to the date of issuance of the Series 2014 Bonds. The opinion of Bond Counsel assumes compliance with these covenants. However, Bond Counsel has not undertaken to determine (or to inform any person) whether any actions taken (or not taken) or events occurring (or not occurring) after the date of issuance of the Series 2014 Bonds may adversely affect the tax status of the interest on the Series 2014 Bonds.
Certain requirements and procedures contained or referred to in the Bond Indenture, the Tax Regulatory Agreement and other relevant documents may be changed and certain actions (including, without limitation, defeasance of the Series 2014 Bonds) may be taken or omitted under the circumstances and subject to terms and conditions set forth in such documents.
Although Bond Counsel for the Series 2014 Bonds is of the opinion that interest on the Series 2014 Bonds will be excludible from gross income for federal income tax purposes and the Series 2014 Bonds will be exempt from taxation within the State of Ohio, as described above, the ownership or disposition of, or the accrual or receipt of interest on, the Series 2014 Bonds may otherwise affect a Holder’s federal, state or local tax liabilities. The nature and extent of these other tax consequences may depend upon the particular tax status of the Holder or the Holder’s other items of income or deduction. Bond Counsel expresses no opinions regarding any tax consequences other than those set forth in its opinion and each Holder or potential Holder is urged to consult with tax counsel with respect to the effects of purchasing, holding or disposing of the Series 2014 Bonds on the tax liabilities of the individual or entity.
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For example, although Bond Counsel for the Series 2014 Bonds is of the opinion that interest on the Series 2014 Bonds is not a specific item of tax preference for purposes of the federal alternative minimum tax, corporations are required to include interest on the Series 2014 Bonds in “adjusted current earnings” under Section 56(c) of the Code, which may increase the amount of any alternative minimum tax owed by any such corporation. Receipt of tax-exempt interest, ownership or disposition of the Series 2014 Bonds may result in other collateral federal, state or local tax consequences for certain taxpayers. Such effects may include, without limitation, increasing the federal tax liability of certain foreign corporations subject to the branch profits tax imposed by Section 884 of the Code, increasing the federal tax liability of certain insurance companies under Section 832 of the Code, increasing the federal tax liability and affecting the status of certain S Corporations subject to Sections 1362 and 1375 of the Code, increasing the federal tax liability of certain individual recipients of Social Security or Railroad Retirement benefits under Section 86 of the Code, limiting the use of the Earned Income Credit under Section 32 of the Code that might otherwise be available and limiting the use of the refundable credit for coverage under a qualified health plan under Section 36B of the Code that might otherwise be available. Ownership of any Series 2014 Bonds may also result in the limitation of interest and certain other deductions for financial institutions and certain other taxpayers pursuant to Section 265 of the Code. Finally, residence of the holder of Series 2014 Bonds in a state other than Ohio or being subject to tax in a state other than Ohio may result in income or other tax liability being imposed by such states or their political subdivisions based on the interest or other income from the Series 2014 Bonds.
PROSPECTIVE PURCHASERS OF THE SERIES 2014 BONDS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISERS PRIOR TO ANY PURCHASE OF THE SERIES 2014 BONDS AS TO THE IMPACT OF THE INTERNAL REVENUE CODE OF 1986, AS AMENDED, UPON THEIR ACQUISITION, HOLDING OR DISPOSITION OF THE SERIES 2014 BONDS.
Original Issue Premium “Acquisition Premium” is the excess of the cost of a bond over the stated redemption price at maturity of such bond. The Series 2014 Bonds (the “Premium Bonds”), are being initially offered and sold to the public with Acquisition Premium. For federal income tax purposes, the amount of Acquisition Premium on the Premium bonds must be amortized and will reduce the Holder’s adjusted basis in that bond. However, no amount of amortized Acquisition Premium on the Premium Bonds may be deducted in determining a Holder’s taxable income for federal income tax purposes. The amount of any Acquisition Premium paid on the Premium Bonds that must be amortized during any period will be based on the “constant yield” method, using the original Holder’s basis in such Premium Bonds and compounding semiannually. This amount is amortized ratably over that semiannual period on a daily basis.
Holders of any Premium Bonds, both original purchasers and any subsequent purchasers, should consult their own tax advisors as to the actual effect of such Acquisition Premium with respect to their own tax situation and as to the treatment of the Acquisition Premium for state tax purposes. Backup Withholding As a result of the Tax Increase Prevention and Reconciliation Act of 2005, interest on tax-exempt obligations such as the Series 2014 Bonds is subject to information reporting in a manner similar to interest paid on taxable obligations. Backup withholding may be imposed on payments made to any bondholder who fails to provide certain required information including an accurate taxpayer identification number to any person required to collect such information pursuant to Section 6049 of the Code. The reporting requirement does not in and of itself affect or alter the excludability of interest on the Series
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2014 Bonds from gross income for federal income tax purposes or any other federal tax consequence of purchasing, holding or selling tax-exempt obligations. Changes in Federal and State Tax Law From time to time, there are legislative proposals in the Congress and in the various state legislatures that, if enacted, could alter or amend the federal and state tax matters referred to above or adversely affect the market value of the Series 2014 Bonds. It cannot be predicted whether or in what form any such proposal might be enacted or whether if enacted it would apply to bonds issued prior to enactment. In addition, regulatory actions are from time to time announced or proposed and litigation is threatened or commenced which, if implemented or concluded in a particular manner, could adversely affect the market value of the Series 2014 Bonds. It cannot be predicted whether any such regulatory action will be implemented, how any particular litigation or judicial action will be resolved, or whether the Series 2014 Bonds or the market value thereof would be impacted thereby. Purchasers of the Series 2014 Bonds should consult their tax advisors regarding any pending or proposed legislation, regulatory initiatives or litigation. The opinions expressed by Bond Counsel are based upon existing legislation and regulations as interpreted by relevant judicial and regulatory authorities as of the date of issuance and delivery of the Series 2014 Bonds and Bond Counsel has expressed no opinion as of any date subsequent thereto or with respect to any pending legislation, regulatory initiatives or litigation.
RATING
Fitch Ratings (“Fitch”) has assigned the Series 2014 Bonds their municipal bond rating of “A-” (stable outlook). Such rating reflects only the view of Fitch at the time such rating was issued, and neither the Issuer nor the Obligated Group makes any representation as to the appropriateness of the rating. Any explanation of the significance of the rating may be obtained from Fitch at One State Street Plaza, New York, New York 10004. The Obligated Group furnished to Fitch information and materials relating to the Series 2014 Bonds and to itself, certain of which information and materials have not been included herein. Generally, rating agencies base their ratings on such information and materials and on investigations, studies and assumptions by the rating agencies. The rating is not a recommendation to buy, hold or sell the Series 2014 Bonds. There is no assurance that the rating will continue for any period of time or that it will not be revised or withdrawn entirely by Fitch if, in its judgment, circumstances so warrant. Any revision or withdrawal of the rating may have an adverse effect on the market price of the Series 2014 Bonds. Neither the Issuer nor the Underwriter has agreed to take any action with respect to any proposed rating change or to bring such rating change, if any, to the attention of the owners of the Series 2014 Bonds. The Corporation has undertaken to file notice of any formal change in any rating that relates to the Series 2014 Bonds that could affect the value of the Series 2014 Bonds. See “FINANCIAL REPORTING AND CONTINUING DISCLOSURE – Continuing Disclosure."
UNDERWRITING
Pursuant to a bond purchase agreement (the “Bond Purchase Agreement”) by and among the Issuer, the Obligated Group, and B.C. Ziegler and Company, as underwriter (the “Underwriter”), the Underwriter will purchase the Series 2014 Bonds at a purchase price of $24,776,476.65, which purchase price reflects $227,925.00 of underwriter’s discount and $1,689,401.65 of original issue premium. The Bond Purchase Agreement will provide that the Underwriter will purchase all of the Series 2014 Bonds if any are purchased. The Underwriter reserves the right to join with dealers and other underwriters in offering the Series 2014 Bonds to the public. The Bond Purchase Agreement will provide for the
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Obligated Group to indemnify the Underwriter and the Issuer against certain liabilities. The obligation of the Underwriter to accept delivery of the Series 2014 Bonds will be subject to various conditions of the Bond Purchase Agreement.
In connection with the issuance of the Series 2014 Bonds, the Project Fund and the Debt Service Reserve Fund will be established with the Bond Trustee under the Bond Indenture. Under the terms of the Bond Indenture, the Corporation may direct the Bond Trustee to invest the funds in the Project Fund and, upon any funding of the Debt Service Reserve Fund, the Debt Service Reserve Fund, within the parameters established in the Bond Indenture. Although no such relationship has yet been established, it is possible that the Corporation may retain the services of Ziegler Capital Management LLC (“ZCM”) to direct the investment of funds in the Project Fund or the Debt Service Reserve Fund. Although ZCM is not an affiliate of the Underwriter, ZCM and the Underwriter have entered into a referral agreement under which referral fees may be paid.
MISCELLANEOUS
The references herein to the Act, the Master Indenture, the Initial Master Notes, the Bond Indenture, the Lease, the Sublease, the Assignment, the Mortgage and the Disclosure Undertaking are brief summaries of certain provisions thereof. Such summaries do not purport to be complete, and for full and complete statements of the provisions thereof reference is made to the Act, the Master Indenture, the Initial Master Notes, the Bond Indenture, the Lease, the Sublease, the Assignment, the Mortgage and the Disclosure Undertaking. Copies of such documents are on file at the office of the Issuer and following the delivery of the Series 2014 Bonds will be on file at the office of the relevant Bond Trustee. All estimates and other statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact.
It is anticipated that CUSIP identification numbers will be printed on the Series 2014 Bonds, but neither the failure to print such numbers on any Series 2014 Bond nor any error in the printing of such numbers shall constitute cause for a failure or refusal by the purchaser thereof to accept delivery of and pay for any Series 2014 Bonds.
All statements in this Official Statement involving matters of opinion, whether or not expressly so stated, are intended as such and not as representations of fact. This Official Statement is not to be construed as a contract or agreement between the Obligated Group or the Issuer and the purchaser or owners of any of the Series 2014 Bonds. Pursuant to the documents under which the Issuer has agreed to sell and the Underwriter has agreed to purchase the Series 2014 Bonds, the Obligated Group has agreed to indemnify the Issuer and the Underwriter against certain liabilities, including liabilities under the federal securities laws. The execution and delivery of this Official Statement have been duly authorized by the Issuer. The Issuer has not, however, prepared nor made any independent investigation of the information contained in this Official Statement except the information under the captions “THE ISSUER” and “LITIGATION – The Issuer.”
The attached APPENDICES are integral parts of this Official Statement and must be read together with all of the foregoing statements.
The Obligated Group has reviewed the information contained herein which relates to it, its Property and operations, and has approved all such information for use within this Official Statement.
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The Issuer has duly authorized the execution and delivery of, and the Corporation has approved, on behalf of itself and the Obligated Group, this Official Statement.
COUNTY OF FRANKLIN, OHIO, acting by and through the County Hospital Commission of Franklin County
By: /s/ Willis S. White Vice Chairperson
Approved:
FRIENDSHIP VILLAGE OF DUBLIN, OHIO, INC., on behalf of itself and the other Obligated Group Members
By: /s/ William J. N. Koniewich Chairman
[THIS PAGE INTENTIONALLY LEFT BLANK]
The Information in this Appendix has been provided by the Obligated Group
APPENDIX A
SELECTED INFORMATION REGARDING FRIENDSHIP VILLAGE OF DUBLIN, OHIO, INC.
SELECTED INFORMATION REGARDING FRIENDSHIP VILLAGE OF DUBLIN, OHIO, INC.
INTRODUCTION
Friendship Village of Dublin, Ohio, Inc. (the “Corporation” or the “Village”) was incorporated in
1978 as an Ohio nonprofit corporation for the purpose of providing housing, health care, home health, and other related services to the elderly. The Corporation is an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended. The Corporation has a 366-unit campus located in Dublin, Ohio which consists of 244 independent living apartments, 16 independent living cottages (the “Villas” or “River Point Villas”), a 46-unit assisted-living facility (the “Residential Care Facility”), and a 60-bed skilled nursing facility (the “Health Care Center”) (collectively, the “Facility”). The Village is accredited by the Commission on Accreditation of Rehabilitation Facilities - Continuing Care Accreditation Commission (“CARF-CCAC”), a member of CARF International, which offers an external third-party review of quality assurance for the public. Additional information regarding the Corporation can be found at its website: www.fvdublin.org.
The Corporation operates under the “life care” concept whereby residents enter into a residency agreement with the Village and pay a one-time entrance fee and an adjustable monthly service fee. Generally, these fees entitle the residents to the use and privileges of the Village for life. The residents do not acquire an interest in the real estate property owned by the Corporation.
Under an agreement with Life Care Services, LLC (“Life Care Services”), the Corporation utilizes Life Care Services to manage the Corporation’s operations. Life Care Services receives a monthly management fee for these services which include, but are not limited to, information systems, marketing, risk management, and financial systems. In addition, Life Care Services is reimbursed for authorized expenditures incurred on behalf of the Village.
Effective September 2007, the Corporation became the sole member of Birchton, LLC, (“Birchton”), which was organized to hold and develop real estate for possible future expansion of the Corporation. Birchton is the sole member of Triangle Housing, LLC, an Ohio limited liability company organized in December 2013 (“Triangle Housing”). Effective May 2014, the Corporation became the sole member of Friendship Village of Dublin Home Care LLC (“Home Care”), which was organized to carry out the home services portion of the Corporation’s business.
The mission of the Corporation is to enhance the quality of life of older adults. The vision of the Corporation is to be central Ohio’s premier provider of high quality, comprehensive, cost-effective lifecare services for older adults.
CORPORATE STRUCTURE, GOVERNANCE AND EMPLOYEES
Corporate Relationships of the Corporation
Birchton is an Ohio single-member limited liability company organized in September 2007 to engage in the real estate, property management, and/or property rental business. The sole “member” of Birchton is the Corporation. Birchton was organized to purchase homes adjacent to the Corporation’s facilities in hopes that future expansion might be available since the Corporation is currently land-locked. To date, the Corporation has purchased seven homes totaling $1.6 million. Funds for such purposes were provided to Birchton by the Corporation. All seven homes are currently rented on a month-to-month
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basis to allow for flexibility for the Corporation’s future expansion plans. Birchton’s revenue for Fiscal Year 2012 was $53,000, for Fiscal Year 2013 was $77,000, and for Fiscal Year 2014 was $94,000. Birchton is the sole “member” of Triangle Housing, an Ohio single-member limited liability company organized in December 2013 to also engage in the real estate, property management, and/or property rental business. Similar to Birchton, Triangle Housing was organized to purchase homes adjacent to the Corporation’s facilities in hopes that future expansion might be available since the Corporation is currently land-locked. To date, Triangle Housing has no assets, revenues, or liabilities.
Home Care is an Ohio single-member limited liability company organized in May 2014 to provide non-skilled home care services. The sole “member” of Home Care is the Corporation. Currently, Home Care only serves residents living within the Village’s independent and assisted living areas. Prior to the organization of Home Care, the Village’s non-skilled home care services were provided by the Corporation. The Village’s revenue attributable to non-skilled home care services for Fiscal Year 2012 was $260,000, for Fiscal Year 2013 was $318,000, and for Fiscal Year 2014 was $393,000.
On the date of issuance of the Series 2014 Bonds, the Corporation, Birchton and Home Care will be the only members of the Obligated Group.
Corporation’s Board of Directors
The Corporation is governed by a voluntary Board of Directors (the “Board”) the number of which shall not exceed 17 voting members. The Board currently consists of 16 voting members, who serve for staggered three-year terms. The Corporation’s Code of Regulations permits the Board to determine the number of terms of office which a board member may be eligible to consecutively serve. It is the Board’s general policy (a) to permit a Board member to reach such member’s maximum term, rotate off the Board for a one-year period and then be eligible for future Board service and (b) to have at least one resident of the Village be a non-voting member of the Board.
The following people comprise the Board of Directors of the Corporation:
Name Residence Occupation Committee Assignments Service Since
William J. N. Koniewich, Chairman
Columbus, OH
President of Transamerica Building Company, Inc.
Executive & Strategic Planning - Chair, Human Resources, Master Plan Implementation
2002
Ronald Bachman Chairman-Elect
Powell, OH Health Care Consultant, Previously Vice President & CFO, Madison County Hospital and President & CEO, Marion General Hospital
Executive & Strategic Planning, Finance & Insurance, Master Plan Implementation
The Board has seven standing committees, listed below. Current committee assignments for Board members are shown above. In addition, Village residents also serve on the Charitable Giving committee.
The day-to-day operations of the Corporation are managed by on-site personnel. Brief resumes of key members of the executive staff of the Corporation are included below.
Jerry B. Kuyoth Jr., Executive Director, joined the Corporation in October 2013, and has been a licensed Health-care Administrator since October 1981. Mr. Kuyoth received a dual Bachelor’s degree in Psychology and Sociology and a minor in Gerontology at Miami University in Oxford, Ohio. Mr. Kuyoth is also certified by the American college of healthcare administrators in the specialty areas of sub-acute, long term care, and assisted living. Following four years as a Regional Director for Nursing Care Management and Harbor Side Healthcare overseeing eight and eleven sites, respectively, Mr. Kuyoth spent ten years with the Ohio Masonic Home system (“OMH”) as the CEO and ten years as the COO for National Church Residences (“NCR”). At OMH Mr. Kuyoth oversaw three campuses, including an $80,000,000 campuses reposition during his tenure. At NCR, Mr. Kuyoth lead eight facilities, nine home care agencies, and six adult day centers with 2,000 associates and a $114,000,000 annual operating budget. Mr. Kuyoth is an employee of the management company, Life Care Services.
Jessica Rieker, LNHA, Health Services Administrator, joined the Corporation in July 2013. Ms. Rieker obtained her Bachelor of Science and Masters from the University of Toledo in Toledo, Ohio. Ms. Rieker became a Licensed Nursing Home Administrator in December 2008. Ms. Rieker was previously employed at Sunset Retirement Communities from 2008 to 2013. She currently carries the responsibilities of Health Services Administrator and oversees the operation of the Residential Care Facility and the Health Care Center.
Craig W. Flickinger, Director of Finance, joined the Corporation in February 2014. Mr. Flickinger brings over 23 years of experience in health care financial management. Mr. Flickinger was previously employed by United Church Homes, Inc. in various roles, including most recently from 2002 to 2014 as Corporate Controller. He holds a Bachelor’s degree in Accounting from Ohio Wesleyan University in Delaware, Ohio, and is a Certified Public Accountant in the State of Ohio. Mr. Flickinger oversees resident billing, payroll, accounts receivable and payable, and preparation of the financial statements.
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Dan Nase, Director of Marketing, joined the Corporation in December 2013. Mr. Nase has been working professionally in marketing and sales for the last 24 years. He graduated with a Bachelor of Arts degree in marketing and advertising from Bloomsburg University in Bloomsburg, Pennsylvania. He spent 18 years working for Gannett Satellite Network (“Gannett”). Working at two of Gannett’s newspaper and media properties in Pennsylvania and Ohio, Mr. Nase started as an account executive in advertising sales and advanced to Advertising and Marketing Director overseeing sales, marketing, creative design, public relations, and production for the property. He also worked in niche publishing and as the Advertising /Marketing Director for the Catholic Archdiocese of Philadelphia and a National Account Executive for Advertising Media Plus, a full-service advertising agency in Baltimore, Maryland. Corporation Employees
As of September 30, 2014, the Corporation employed 285 employees, 167 of which were full-time equivalents. Of this total, there are approximately 13 registered nurses and eight licensed practical nurses.
The Corporation provides its full-time employees with a comprehensive benefit package which includes group medical and dental insurance (an employee option), life insurance coverage, short-term disability coverage, a 403B plan, a flexible spending plan, a paid time-off package and a defined benefit pension plan through MetLife. The Corporation also provides an off-site employee assistance program that provides confidential consultations with licensed behavioral health professionals and several on-site staff training programs each year.
No employee of the Corporation is represented by a labor union. No union activity or attempts to organize are being conducted at the present time. Management of the Corporation believes that relations with its employees are good.
THE MANAGER—Life Care Services LLC
To assist the Village in realizing its goal of providing a first-quality retirement community, the Village has retained Life Care Services from Des Moines, Iowa, which is recognized as a leader in the marketing and management of full service retirement communities. Life Care Services and an affiliated company, CRSA, currently manage approximately 124 retirement communities serving over 32,000 residents in 32 states and the District of Columbia. LCS Holdings, Inc. (“LCS Holdings”) (the parent company of Life Care Companies LLC and through it Life Care Services and CRSA) developed 21 of these communities and has an ownership interest in 34 of them (nine in Minnesota, five in Indiana, two each in Arkansas, Arizona, Connecticut, Maryland, Tennessee, Virginia, and Wisconsin, and one each in Alabama, Florida, Hawaii, Illinois, North Carolina, and Washington). Life Care Services provides its management services from its home office in Des Moines, Iowa, and regional offices in Charlotte, North Carolina; Old Saybrook, Connecticut; Indianapolis, Indiana; Delray Beach, Florida; San Diego, California; and St. Louis, Missouri. CRSA is based in Memphis, Tennessee.
As of September 15, 2014, Life Care Services and CRSA manage approximately 85 life care or continuing care retirement communities, and 39 free-standing nursing, assisted living, or independent living retirement communities.
Principal officers of Life Care Services include Mr. Ed Kenny, Mrs. Diane Bridgewater, Mr. Rick Exline and Mr. Joel Nelson. The following is a brief description of those principal officers:
Mr. Kenny is President and Chief Executive Officer of Life Care Services since 2006. He is a graduate of Providence College with a Bachelor of Science degree in health services administration.
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Since joining Life Care Services in 1979, Mr. Kenny has provided on-site leadership at several Life Care Services-managed communities. In 1985, Mr. Kenny added regional responsibilities and was named a Vice President in 1989. In 1990, he became Senior Vice President of Operations Management and Executive Vice President of Operations Management in 2001. Mr. Kenny serves as Chair of the Board of Managers for Life Care Companies and is the Chair of the Board of Directors of LCS Holdings. He also is the past Chairman of the American Seniors Housing Association (ASHA) and an invited member of the National Investment Center (NIC) where he serves on the NIC Operator Advisory Board.
Mrs. Bridgewater is Executive Vice President/Chief Financial and Administrative Officer of Life Care Services. Mrs. Bridgewater joined the organization in 2006 after filling several executive level positions with Pioneer Hi-Bred International, a DuPont Company. In her years with Pioneer, she held a number of operational and financial roles including: Chief Financial Officer, Vice President and Business Director for North America, Director of Customer and Sales Services for Seed and Crop Protection, Worldwide Finance Director, and other roles. Mrs. Bridgewater started her career with KPMG. Mrs. Bridgewater earned her undergraduate degrees in Accounting and French from the University of Northern Iowa and received her CPA certification in 1986. Mrs. Bridgewater currently serves on the boards of LCS Holdings, Life Care Companies LLC, Casey’s General Stores, and Bankers Trust.
Mr. Exline is Executive Vice President of Operations of Life Care Services. Prior to this promotion, he was the Senior Vice President/Senior Director of Operations Management. Since starting with Life Care Services in 1978, Mr. Exline served in Administrator and/or Executive Director positions at several Life Care Services-managed communities, until taking on regional management responsibilities in 1983. Today, Mr. Exline executes the responsibilities of Life Care Services to lead the relationships with all communities managed by Life Care Services. In this role he actively reviews community financial performance, resident satisfaction levels, occupancy levels, quality of care and risk management. Mr. Exline is a member of the LCS Holdings Board of Directors and Board of Managers of Life Care Companies. Mr. Exline is a graduate of Simpson College with a bachelor’s degree in business administration, and a Bachelor’s degree in health care administration from Oklahoma Baptist University. In 1987, he graduated from the Executive Institute at the University of North Carolina at Chapel Hill.
Mr. Nelson is Executive Vice President/Chief Development Officer of Life Care Services. Prior to his current position, he was the Executive Vice President of Operations Management. Mr. Nelson began his employment with Life Care Services in 1986 at Friendship Village South County in St. Louis, Missouri. Joel has served in several capacities with Life Care Services over the past 20 years including Executive Director of multiple CCRC campuses, Regional Marketing Specialist, and Director of Operations Management. Mr. Nelson is the Secretary of the Board of Directors of LCS Holdings. and serves on the Board of Managers of Life Care Companies LLC. He has been a presenter at several national conferences including AAHSA (now LeadingAge), Alabama Governors Conference, and the Indiana Association for Homes and Services for the Aging. Mr. Nelson has a Bachelor of Arts degree from Simpson College with a double major in Health Care Administration and Business Management.
Life Care Services serves as the property manager of the Corporation, and, in connection therewith, recommends and regularly evaluates policies and goals of the Village; implements the policies, budgets, directives and goals established by the Village; markets the Village; manages the day-to-day operations of the Village in accordance with the Village’s policies, directives and goals; provides the Village with relevant information as to past operations; and makes recommendations as to the future operation of the Village.
In support of the Corporation, Life Care Services recommends personnel policies and procedures for the Village’s employees; recommends appropriate employee compensation and benefit plans; as necessary or appropriate, recruits employees to be employed by the Village; and utilizing personnel
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policies, procedures and guidelines adopted by the Village, implements the recruitment, hiring, training, retention and termination of Village staff members. Life Care Services hires, trains, and supervises the Executive Director of the Village, who is an employee of Life Care Services.
Life Care Services maintains a system of financial controls for the Village using the software provided at other similar communities managed by Life Care Services or its subsidiaries, and provides the Village with monthly financial statements and annual budgets for operating revenue and expense, capital expenditures and cash flow projections for the Village, and recommends a schedule of resident entrance fees, monthly services fees and other charges.
The Board of Directors of the Village retains the ultimate control over the retention of Life Care Services and evaluates its performance, as well as monitors the operating costs, wages, salaries, expenses and overall fiscal viability of the Corporation.
As of September 15, 2014, Life Care Services and CRSA or its subsidiaries were managing, developing or constructing the following retirement communities (with Life Care Services having an ownership interest in the communities that appear in boldface)
Living Nursing Personal Units Beds Care*
Retirement Communities Developed and Managed by Life Care Services LLC (17) Arizona, Tempe (Phoenix) - Friendship Village .......................................... 572 142 91 Arizona, Phoenix – Sagewood ................................................................... 294 32 16 Connecticut, Essex - Essex Meadows .......................................................... 188 45 0 Connecticut, Mystic – StoneRidge ............................................................ 270 40 12 Connecticut, Southbury – Pomperaug Woods ............................................. 146 30 0 Florida, Stuart - Sandhill Cove .................................................................... 225 36 20 Maryland, Baltimore - North Oaks .......................................................... 182 37 12 Maryland, Towson – Blakehurst .............................................................. 277 44 24 Michigan, Kalamazoo - Friendship Village ................................................. 214 57 63 Missouri, Sunset Hills (St. Louis) - Friendship Village of Sunset Hills.............................................................................................. 338 118 61 Missouri, Chesterfield (St. Louis) - Friendship Village of Chesterfield ............................................................................................. 287 99 22 New Jersey, Lakewood – Harrogate ............................................................ 277 60 8 North Carolina, Wilmington - Plantation Village ........................................ 214 0 0 Ohio, Columbus – Friendship Village ......................................................... 253 90 64 Ohio, Dublin - Friendship Village of Dublin ............................................... 260 60 46 Tennessee, Brentwood – Heritage at Brentwood .................................... 196 30 0 Washington, Isaaquah – Timber Ridge at Talus .................................... 184 36 0 _________________
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Living Nursing Personal Units Beds Care* Continuing Care Retirement Communities Currently Under Development and/or Construction (1) Minnesota, Plymouth (Minneapolis) – Trillium Woods ......................... 187 45 0 Assisted Living Facilities Developed and Managed by Life Care Services LLC (3) Florida, St. Petersburg – Bon Secours Place at St. Petersburg .............. 0 0 102 Virginia, Norfolk - Province Place at Depaul .......................................... 0 0 81 Virginia, Portsmouth – Province Place of Maryview ............................. 0 0 72 Living Nursing Personal Units Beds Care* Retirement Communities Managed by Life Care Services LLC or CRSA (85)Arizona, Peoria (Phoenix) - Sierra Winds ................................................... 240 70 0Arkansas, Blytheville – Westminster Village of the Mid South.................. 414 0 0Alabama, Hoover – Danberry at Inverness ............................................. 160 0 72California, Carlsbad – La Costa Glen .......................................................... 630 58 88California, Castro Valley – Baywood Court ................................................ 188 56 30California, Cupertino – Forum at Rancho San Antonio............................... 319 48 58California, Fullerton - Morningside of Fullerton and Park Vista at Morningside ............................................................................................. 330 99 54California, Pleasanton – Stoneridge Creek .................................................. 414 68 74California, San Diego – Casa de las Campanas ........................................... 394 99 54California, San Rafael – Aldersly ................................................................ 60 20 30California, Thousand Oaks – University Village......................................... 367 48 48Connecticut, Chester - Chester Village West .......................................... 105 0 0Connecticut, Redding – Meadow Ridge ...................................................... 226 50 20DC, Washington – Residences at Thomas Circle ........................................ 121 27 55Florida, Miami – East Ridge Retirement Village......................................... 248 60 52Georgia, Columbus – Spring Harbor ........................................................... 196 40 60Georgia, Savannah – Marshes of Skidaway................................................. 182 15 45Georgia, Stone Mountain – Park Springs..................................................... 398 24 40Illinois, Bartlett – Clare Oaks ...................................................................... 164 120 33Illinois, Chicago – The Clare at Water Tower ........................................ 248 32 54Illinois, Godfrey – United Methodist Village .............................................. 177 0 44Illinois, Lincolnshire – Sedgebrook ............................................................. 469 88 44Illinois, Naperville – Monarch Landing ....................................................... 367 0 0Illinois, Plainfield – Cedarlake Village ........................................................ 186 0 0Illinois, Tinley Park – Hanover Place ....................................................... 150 0 0Illinois, Wheaton – Wyndemere ............................................................... 237 157 65 Indiana, Avon – Wellbrooke of Avon ....................................................... 70 0 30 Indiana, Crawfordsville – Wellbrooke of Crawfordsville ...................... 70 0 30 Indiana, Greenwood (Indianapolis) - Greenwood Village South................. 252 107 88Indiana, Indianapolis – Marquette ............................................................... 314 102 63Indiana, Kokomo – Wellbrooke of Kokomo............................................ 70 0 30Indiana, North Manchester – Peabody ......................................................... 57 144 172Indiana, Terre Haute - Westminster Village of Terre Haute........................ 184 78 39Indiana – West Lafayette – Westminster Village West Lafayette ......... 191 58 76Indiana, Westfield – Wellbrooke of Westfield………………………….. 70 0 30 Iowa, Ames – Green Hills ………………………………………………... 138 40 0
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Living Nursing Personal Units Beds Care* Iowa, Cedar Rapids – Cottage Grove Place ............................................ 166 40 31Louisiana, Covington – Christwood ............................................................ 119 20 30Maryland, Annapolis – Baywoods of Annapolis ......................................... 147 39 27Maryland, Columbia – Vantage House ........................................................ 224 44 26Maryland, Timonium – Mercy Ridge .......................................................... 408 0 47Michigan, Battle Creek – Northpointe Woods............................................. 100 0 50Michigan, Dearborn – Henry Ford Village ................................................. 855 89 96Michigan, Jackson - Vista Grande Villa ...................................................... 234 60 69Michigan, Waterford – Canterbury on the Lake .......................................... 75 120 59Minnesota, Apple Valley – The Timbers ................................................. 106 0 0 Minnesota, Brooklyn Center – Earl Brown Terrace .............................. 76 0 80 Minnesota, Brooklyn Park – Tradition .................................................... 93 0 70 Minnesota, Brooklyn Park – Waterford Estates ..................................... 144 0 0 Minnesota, Brooklyn Park – Waterford Manor ..................................... 24 0 97 Minnesota, Burnsville – The Rivers ......................................................... 120 0 59Minnesota, Crystal – Heathers Estates .................................................... 136 0 0Missouri, Ellisville - Gambrill Gardens ...................................................... 294 0 0 Missouri, Higginsville - John Knox Village East ........................................ 155 96 39Missouri, Kansas City – Kingwood……………………………………. 211 82 17Missouri, Marionville – Ozarks Methodist Manor ...................................... 58 60 56North Carolina, Arden – Ardenwoods at Avery’s Creek....................... 96 0 60North Carolina, Chapel Hill – The Cedars of Chapel Hill ........................... 288 44 4North Carolina, Charlotte – The Cypress of Charlotte ................................ 310 30 10North Carolina, Durham – Croasdaile Village............................................. 287 114 86North Carolina, Greensboro – WhiteStone .................................................. 140 88 12North Carolina, Greenville – Cypress Glen ................................................. 194 30 42North Carolina, Lumberton – Wesley Pines ................................................ 22 62 28North Carolina, Pittsboro – Galloway Ridge ............................................... 234 16 22North Carolina, Raleigh – Cypress of Raleigh ............................................ 300 40 0Oklahoma, Bartlesville – Green Country Village ........................................ 99 28 30Oregon, Dallas – Dallas Retirement Village................................................ 127 121 85Oregon, Salem – Capitol Manor .................................................................. 290 0 78Oregon, Salem – Pacifica Senior Living Caloraga ...................................... 201 0 63Pennsylvania, Reading – Heritage of Green Hills ....................................... 196 0 76South Carolina, Greenville - Rolling Green Village.................................... 423 44 74South Carolina, Hilton Head Island - The Cypress of Hilton Head............. 323 44 11South Carolina, Sumter – Covenant Place ................................................... 80 28 74South Carolina, West Columbia – Laurel Crest ........................................... 84 12 22 Tennessee, Germantown – Village at Germantown..................................... 199 30 18Texas, Austin - Westminster Manor ............................................................ 268 90 0Texas, Austin – Longhorn Village ............................................................... 214 60 36Texas, Dallas – Autumn Leaves .................................................................. 57 64 49 Texas, Dallas – Monticello West ................................................................. 6 0 156 Texas, Dallas – Parkwood IL ....................................................................... 147 0 0 Texas, Dallas – Signature Pointe ................................................................. 105 136 65 Texas, Lubbock – Carrillon 266 120 62Texas, Wichita Falls – Rolling Meadows .................................................... 169 84 0Wisconsin, Mequon – Newcastle Place ..................................................... 159 47 52 Wisconsin, Milwaukee – Eastcastle Place ................................................ 117 40 57 _________________
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Living Nursing Personal Units Beds Care*
Assisted Living Facilities Managed by Life Care Services LLC (16) Arizona, Phoenix – Chandler Memory Care ................................................ 0 0 84 Arizona, Scottsdale – Scottsdale Memory Care ...................................... 0 0 86 Arkansas, Little Rock – Clarity Point Little Rock .................................. 0 0 59 Arkansas, Fayetteville – Clarity Point at Fayetteville ............................ 0 0 59 Kentucky, Louisville – Magnolia Springs East ........................................... 0 0 100 Kentucky, Louisville – Magnolia Springs at Whipps Mill .......................... 0 0 100 Minnesota,Crystal – Heathers Manor .......................................................... 0 0 84 Minnesota, Wayzata – Meridian Manor ..................................................... 0 0 77 Oregon, Portland – Pacifica Senior Living Portland .................................... 0 0 113 Tennessee, Franklin – Maristone at Franklin ............................................... 0 0 54 Tennessee, Germantown – Gardens of Germantown ................................... 0 0 62 Tennessee, Mt. Juliet – Maristone at Providence ......................................... 0 0 61 Tennessee, Knoxville – Clarity Point ........................................................ 0 0 56 Texas, Bedford – Parkwood Healthcare ...................................................... 0 102 69 Texas, Dallas – Walnut Place ...................................................................... 0 81 229 Utah, Salt Lake City – Pacifica Senior Living Millcreek ............................ 0 0 73 Health Centers (Stand Alone) Managed by Life Care Services LLC (3)Hawaii, Honolulu - Hale Ola Kino ........................................................... 0 32 0Indiana, Wabash – Wellbrooke of Wabash ............................................. 0 70 30Kansas, Atchison - Dooley Center ............................................................... 0 50 0
(*) Personal Care is also sometimes referred to as assisted living, residential care, domiciliary care, boarding care and board and care.
Management Agreement
Life Care Services has been engaged by the Village to provide management services for the Village. The current management agreement, which commenced on July 1, 2012 and expires on June 30, 2015, provides that Life Care Services will receive compensation for its ongoing management services at a base rate of $26,000 per month in Fiscal Year 2013, $27,000 per month in Fiscal Year 2014, and $28,000 per month in Fiscal Year 2015. The Village also reimburses Life Care Services for the salary and benefits of the Executive Director, who is an employee of Life Care Services. The Management Agreement may be terminated without cause and without penalty by Life Care Services or by the Village at any time upon three months’ prior notice. It may also be sooner terminated in the event of the insolvency of either party. The Village expects to renew the management agreement with a term ending on June 30, 2018.
Life Care Services’ responsibilities include but are not limited to recruiting, employing and training the Executive Director of the Corporation; training all Corporation staff as needed; establishing
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and operating a system of financial controls; and recommending other personnel policies and procedures as needed.
THE FACILITY
Location
The Village is located in Dublin, Ohio, approximately ten miles northwest of Columbus, Ohio. The suburb of Dublin ranks in the top quartile of Columbus-area single-family homes in appraised value and it is in a nationally-recognized education system. The Village is located five miles from The Ohio State University and has a large number of retired faculty as residents. Riverside Hospital and one of its affiliates, Dublin Methodist Hospital, are part of the OhioHealth Network and each is within five miles of the Village. The Village is located within two miles of the Bridge Street corridor which is an 1,100 acre expansion of the City of Dublin.
General Description
Construction of the Facility commenced in 1979 and the Facility opened in 1982. The 366-unit Facility provides to its residents a continuum of services consisting of independent living units (including the River Point Villas), the Residential Care Facility, and the Health Care Center. The 23-acre site was originally developed by Life Care Services. The Facility is designed to serve the housing, health care, physical, emotional, recreational and social needs of older adults. An extensive health care program is provided to residents, including an on-site clinic and therapy center.
The buildings at the Village contain a total of approximately 450,000 square feet, and are mainly comprised of:
• a 244-unit residential complex and 16 Villas designed in clusters of four cottages each; • a 46-bed Residential Care Facility area; • the 60-bed Health Care Center; and • a pool added in 2006 located at the north end of the residential building.
The facility has undergone additions in 1986, 1992, 2006 and 2013. The 2006 addition added 51 large two-bedroom apartments, two dining venues, a large fitness/exercise studio, swimming pool, and 49 garages. In 2013, the Villas were added to the Village.
Independent Living Units
The independent living units range from alcove units of approximately 426 square feet to two-bedroom units with a den deluxe of approximately 1,800 square feet. All units have a living/dining room, kitchen and a least one bathroom. The Corporation expanded its independent living facilities by 51 units in 2006. In addition, in 2013 the Corporation expanded by adding the Villas, known as the River Point Villas. Set forth below is a summary of the current independent units:
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Number Approximate Square Footage Type of Unit Apartments Cottages Total Apartments Cottages
Alcove 3 0 3 426 ---- One bedroom 41 0 41 572 ---- One bedroom deluxe 48 0 48 720 ---- One bedroom custom 13 0 13 863 ---- Two bedroom 46 0 46 863 ---- Two bedroom deluxe 27 0 27 1,010 ---- Two bedroom custom 15 0 15 1,154 ---- Two bedroom North 51 0 51 1,377 ---- Villa I – 2 car garage 0 1 1 --- 1,550 Villa II – 2 car garage 0 6 6 --- 1,675 Villa III – 2 car garage 0 9 9 --- 1,800 Total 244 16 260
Assisted Living
The 46-bed licensed Residential Care Facility is designed to meet the assisted living needs of residents who have been transferred to the Residential Care Facility on a permanent basis as well as persons who have been directly admitted to the Residential Care Facility from the surrounding community. The Residential Care Facility includes 46 private studio apartments, each equipped with a full bathroom. The Residential Care Facility does not participate in the Medicaid Waiver program. The Residential Care Facility is approximately 64,000 square feet, and houses dining facilities, lounges and recreational areas.
When medical services are ordered by one of the Corporation’s designated contract physicians, the Corporation provides general medical services, nursing care, special dietary service, prescription medications and contracted in-house rehabilitation therapy services. Residents of the Residential Care Facility are required to maintain at their own expense coverage under Medicare Part B for ancillary medical services elected or necessary. If a resident is in need of a physician other than those designated by the Corporation, the resident is referred to another physician who is able to perform the necessary services.
Emergency medical services are available to residents on a 24-hour basis. The Corporation will make the necessary arrangements with a local hospital for the transfer and care of residents when necessary.
Health Care Center
The 60-bed Health Care Center is designed to meet the long-term care needs of residents who have been transferred to the Health Care Center on a temporary or permanent basis as well as persons who have been directly admitted to the Health Care Center from the surrounding community. The Health Care Center includes 12 private rooms and 24 semi-private rooms. All 60 beds are Medicare and Medicaid certified. The Health Care Center is approximately 16,340 square feet, and houses dining facilities, lounges and recreational areas.
When medical services are ordered by one of the Corporation’s designated contract physicians, the Corporation provides general medical services, nursing care, special dietary service, prescription medications and contracted in-house rehabilitation therapy services. Residents are required to maintain at their own expense coverage under Medicare Parts A and B and a Medi-gap policy approved by the
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Corporation. If a resident is in need of a physician other than those designated by the Corporation, the resident is referred to another physician who is able to perform the necessary services. The terms of the Life Care Contract state that the Corporation will furnish a semi-private accommodation, nursing care, and such personal services as may be required for the health, safety, and well-being of the resident.
Emergency medical services are available to residents on a 24-hour basis. The Corporation will make the necessary arrangements with a local hospital for the transfer and care of residents when necessary.
Residency Agreements
Admissions Criteria
The Village accepts as residents persons at least 62 years of age who are able to care for themselves and can demonstrate sufficient financial resources to meet the Village’s fee requirements. In the case of a couple, the second person must also be at least 62 in order to qualify for a Life Care Contract. Each resident must execute a Life Care Contract (a “Residency Agreement”) governing the services and related fees to be provided by the Village.
At the time of the execution of the Residency Agreement, it is expected that the resident’s health will permit him or her to live independently and be free of any potentially debilitating illness including dementia or diagnosed Alzheimer’s disease. Each resident is also expected to provide personal financial statements demonstrating that he or she has assets sufficient to pay a one-time entrance fee (the “Entrance Fee”) and income sufficient to permit payment of a monthly service fee (the “Monthly Service Fee”), plus other personal expenses that may be reasonably expected. The resident’s income must also be sufficient to meet anticipated increases in the cost of living.
Under the terms of the Residency Agreement, the resident agrees to pay a one-time Entrance Fee and a Monthly Service Fee. The Monthly Service Fee entitles the resident to the following services: paid utilities, semi-monthly housekeeping service, weekly flat laundry service, one daily meal, services of a social director and planned activities, services of a chaplain, scheduled transportation services, emergency nursing service, use of aquatic and fitness center, building maintenance services and grounds care, and 24-hour security.
Entrance Fees and Monthly Service Fees are based on the size of the residential unit. The Monthly Service Fees are also based on single or double occupancy. Entrance Fees are usually adjusted annually to reflect such factors as the market environment and the anticipated costs of continuing care. Monthly Service Fees are adjusted annually based on cost of living factors such as projected costs, prior year capital costs and economic indicators. While the adjusted Monthly Service Fees affect all residents under contract, the adjusted Entrance Fees affect new residents only.
At the time a Residency Agreement is signed, the resident is obligated to pay a deposit equal to 10% of the total Entrance Fee for the type of unit selected.
Independent Living: Apartments & River Point Villas
Traditional Lifecare Plan- Includes a Declining Refund. The Village will retain 1% of the Entrance Fee per month of residency should the resident move away from the Village which means after 100 months the Village would retain 100%. In the case of a resident passing away, the Village will retain 2% of the Entrance Fee per month; after 50 months the Village would retain 100%. Any refund
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remaining would be paid to the resident or his/her estate depending on the circumstances. As of June 30, 2014, 270 residents utilize this plan.
Return of Capital Lifecare Plan- Includes up to 80% Refund. The Return of Capital Plan offers a refund of up to 80% of the original Entrance Fee upon the reoccupancy of the living unit. Entrance Fees under the Return of Capital Plan are 70% higher than those of the Traditional Plan, while Monthly Service Fees under both plans are identical. Should residency end before 50 months have elapsed, the cost of any nursing care or assisted living services received would be deducted from the 80% refund. As of June 30, 2014, ten residents utilize this plan.
Alternate Plan- Available only on Alcove and one-bedroom apartments. The Entrance Fees under the Alternate Plan are about 40% lower than those of the Traditional Plan, while Monthly Service Fees are approximately 30% higher. Should the resident move elsewhere within the first 100 months of residency or pass away within the first 50 months of residency, the resident or the estate would be eligible for a prorated refund of the Alternate Plan Entrance Fee, determined by the length of residency. As of June 30, 2014, 18 of residents utilize this plan.
Monthly Fee Option- Available only on Alcove and one-bedroom apartments. This option is a monthly fee for apartment residences including community amenities. If healthcare services are required it would be at full market private payment rate. As of June 30, 2014, no residents utilize this plan.
River Point Villas Modified Lifecare Plan- Traditional and Return of Capital Plans. Traditional and Return of Capital Plan Entrance Fees provide basic assisted living and long-term nursing care should a resident ever require such services, under the terms specified for Lifecare plans. Modified Life Care Monthly Service Fees include a standard services and amenities package, but do not include dining credits and utilities. As of June 30, 2014, 16 residents utilize this plan.
Lifecare Benefit- Residents on the Traditional Lifecare Plan, the Return of Capital Lifecare Plan, the Alternate Plan, and the River Point Villas Modified Lifecare Plan will have priority access to the Village’s assisted living community over non-residents and non-Lifecare residents at the prevailing Lifecare Monthly Service Fee, plus the cost of two meals per day. If long-term nursing care in the Health Care Center is required, a resident on any of the foregoing plans will have priority access over non-residents and non-Lifecare residents at the prevailing Life Care Monthly Service Fee, plus the cost of two meals per day.
The general services included in the plans described above include:
• 24-hour security • A daily meal credit that may be used for one full meal or a variety of other choices in any of the
four dining venues (Main Dining Room, North Dining Room, Village Bistro, and Nifty – Café) excluding River Point Villa Modified Lifecare Plans
• All utilities, including cable TV with basic programming and local telephone service, excluding River Point Villa Modified Lifecare Plans
• Aquatic Center for water aerobics classes and lap swimming • Complete building maintenance services and grounds care • Full-time Wellness Director • Fitness Center with state-of-the-art strength and cardiovascular equipment • Full-time professional activities director • Level 1 assisted living care • Long-term nursing care in the Health Care Center
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• Scheduled transportation for shopping and medical appointments at a seven mile radius • Twice-monthly housekeeping services • Weekly flat laundry service
Schedule of Fees
The tables below summarize the Corporation’s current Entrance Fees and Monthly Service Fees for its Traditional, Return of Capital, Alternate, and River Point Villas Modified Lifecare Plans. Entrance Fees shown below are for the Corporation’s Traditional 2% declining refund plan. Entrance Fee pricing for the Corporation’s 80% Refund of Capital Plan (as of June 30, 2014, the Corporation had only nine such Residency Agreements) are adjusted, based on an actuarial factor and on the refund option selected.
Traditional Lifecare Plan Entrance and Monthly Fees
(Effective July 1, 2014) Type of Unit
Range (Single Occupant) Entrance Fee (Single Occupant) Average Monthly Service Fee
(Single Occupant)
Alcove $69,800 $1,930 One Bedroom $103,300-$135,800 $2,162-$2,465 Two Bedroom $158,600-$236,300 $2,735-$3,580 Two Bedroom North $223,800-$345,300 $3,185-$4,985
Return of Capital Lifecare Plan Entrance and Monthly Fees
(Effective July 1, 2014) Type of Unit
Range (Single Occupant) Entrance Fee Average Monthly Service Fee
(Single Occupant)
Alcove $118,800 $1,930 One Bedroom $175,800 - $230,700 $2,162 - $2,465 Two Bedroom $269,500 - $401,500 $2,735 - $3,580 Two Bedroom North $380,300 - $587,100 $3,185 - $4,985
Alternate Residence Lifecare Plan Entrance and Monthly Fees
(Effective July 1, 2014) Type of Unit
Range (Single Occupant) Entrance Fee Average Monthly Service Fee
River Point Villas Modified Lifecare Plan Entrance and Monthly Fees
(Effective July 1, 2014) Type of Unit
Range (Single Occupant) Entrance Fee Average Monthly Service Fee
(Single Occupant)
Villa I $302,200 $1,910 Villa II $352,800 $2,120 Villa III $390,500 $2,335
The Monthly Plan fees range from $2,606 to $3,328 per month for one bedroom apartments.
Currently, no residents are using the Monthly Plan. For all plans, monthly fees are typically adjusted annually on July 1. Double occupancy fees are
an additional $26,000 for Entrance Fees and an additional $949 for Monthly Service Fees. With the exception of the Modified Lifecare plan, if a resident needs care in the Corporation’s licensed nursing facility, the Corporation will provide that care at the same monthly fee the resident is paying for his/her residential unit.
Termination by Resident. Residents who terminate the Residency Agreement within 7 days of
signing the agreement (the “Rescission Period”) will receive a refund of the entrance fee deposit.
Residents who terminate the Traditional, Alternate and River Point Villas Residency Agreements either prior to occupancy or after the Rescission Period will receive a refund of the Entrance Fee, less 20%, less costs specifically incurred at the request of the resident, no later than 30 days after a new resident signs a contract and pays the applicable Entrance Fee deposit or entry fee for the independent living unit vacated.
Residents who terminate the Return of Capital Residency Agreement either prior to occupancy or after the Rescission Period will receive a refund of the Entrance Fee, less 10%, less costs specifically incurred at the request of the resident, no later than 30 days after a new resident signs a contract and pays the applicable Entrance Fee deposit or entry fee for the independent living unit vacated.
Termination by the Corporation. The Corporation may terminate a Residency Agreement at any time for just cause, including, but not limited to: (i) failure to pay Entrance Fees or monthly fees in accordance with the Residency Agreement; (ii) willful mismanagement of assets or income needed for payment of monthly fees; (iii) any material misrepresentation or omission in connection with the making of the application for admission; (iv) acts of fraud committed in connection with the Residency Agreement; or (v) in the event a resident’s continued presence becomes a threat to his or her life, health or safety or that of other residents.
Written notice of termination for just cause shall be delivered with an effective date of no less than 30 days for medical reasons or no more than 120 days if the notice is due to lack of payment, during which time the resident shall have the opportunity to resolve the issue in accordance with the terms of the Residency Agreement. A medical reasons notice shall be expressly based upon a written statement of medical findings by the Medical Director of the Corporation, that the resident is a danger to himself or herself or others. The Corporation shall then fix an effective termination date which is reasonable in light of the circumstances. Decisions to terminate may be appealed under the terms of the Residency Agreement.
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Price History
Each year the monthly fee rates for rooms are compared to the market and adjustments are made with a focus on maintaining a strong revenue stream but at the same time remaining competitively priced. During the last three years, the Corporation has increased its Monthly Service Fees by approximately 3.0% per annum on average. The Monthly Service Fees for Fiscal Year 2015 are 3% higher than the fees in effect during Fiscal Year 2014. Entrance Fees vary from year-to-year depending on market demand and availability of units.
Fees for assisted living range from $148 per day to $215 per day, and memory care fees range from $212 per day to $247 per day, each based on the level of care and size of the living unit. The Health Care Center fees range from $255 per day to $311 per day, based in the size of the living unit.
Competitive Retirement Communities
There are a number of retirement facilities within the greater Columbus market, but the Corporation only considers three to be competitive.
Community Contract Type Comments (Owner/Operator) First Community Village Modified Fee-for-Service National Church Residences Forum at Knightsbridge Monthly Rental Five Star Senior Living Westminster-Thurber Community Modified Fee-for-Service Accredited OPRS Communities
Marketing the Facility
The target market for potential residents is an adult over the age of 75, with an annual income in excess of $50,000. The primary geographic market area is a five mile radius from the site. More than 70 percent of current residents originate from the Dublin, Ohio zip code. Potential residents tend to have an interest in continuing education and cultural events. Prospective residents for the Facility are more likely to be higher than average income earners, computer literate and college educated professionals, who are often civically active in their communities.
The target market is characterized by a greater affluence than the national average. According to a Claritas survey, the median home price for 2013 within the Dublin, Ohio zip code is $265,468, which is more than double the average for the State of Ohio. From the same Claritas survey, the target market of those age 75+ with greater than $50,000 income is projected to increase at a rate greater than the national average, which could result in as many as 95 new target households per year over the next five years and an additional 412 target households in the primary market area.
Potential residents can reserve a post on the Village Preferred Waiting List with a deposit of $5,000 regardless of preferred apartment size or style. The deposit will freeze the entry fee in effect at the time of reservation for a two-year period and will earn a simple 2% interest. If the potential resident rejects an available apartment of his or her preference after the two-year period ends, the accrual of interest will cease. A person may not always move in to a unit when a vacancy arises for a number of reasons, including: the unit available is not the unit desired, the timing of the move is inconvenient or not feasible at such time, and such move is dependent on the sale of an existing residence. The deposit is 100% refundable if circumstances change and the potential resident no longer meets the health or financial requirements of entry to the Village. For any other reason for cancellation, the Village retains 20% of the deposit and 80% is returned with no interest. As of September 30, 2014, there are 37 people on the Preferred Waiting List.
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Licenses and Accreditation
The Health Care Center is licensed by the Ohio Department of Health (“ODH”) (60 beds as a licensed nursing home and 46 beds as a licensed residential care facility) to provide nursing care and is certified by Medicare for providing skilled nursing services in the nursing home.
The Corporation received accreditation from the CARF-CCAC in 2013. The Corporation’s 60-bed nursing home is a Medicare 5-Star Facility. In the past three years, one of the nursing facility surveys was deficiency-free as determined by ODH.
The Project
Approximately $7,040,000 of proceeds of the Series 2014 Bonds will be used to (a) reimburse the Corporation for the costs of (i) construction and equipping 12 River Point Villas placed in service in 2013 and 2014, (ii) other capital expenditures made by the Corporation in fiscal year 2014 and (iii) architect fees (aggregating approximately $4,748,900); and (b) finance (i) the construction and equipping of four independent living villas (the “2015 River Point Villas Project”), with construction expected to begin in late 2014 and (ii) future capital expenditures for fiscal years 2015 and 2016 (aggregating approximately $2,291,100). The Corporation has received $5,000 deposits of the Entrance Fee for each of the four villas composing the 2015 River Point Villas Project. For additional information, see “PLAN OF FINANCE” in the Official Statement and “SELECTED UTILIZATION AND FINANCIAL INFORMATION— Future Plans—Corporation’s Master Plan” below.
SELECTED UTILIZATION AND FINANCIAL INFORMATION
Historical Utilization
The table below summarizes historical average occupancy statistics of the Facility for the last three Fiscal Years and for the three-month periods ended September 30, 2013 and 2014.
Historical Utilization by Type of Unit
Fiscal Year Ended
June 30, Three Months Ended
Sept 30, 2012 2013 2014 2013 2014
Independent Living Available Units 254 258 262 258 260 Average Occupancy 241 244 251 246 246 Percent 94% 95% 96% 94% 94% Assisted Living Available Units 46 46 46 46 46 Average Occupancy 44 44 43 44 44 Percent 95% 95% 94% 95% 95% Skilled Nursing Available Units 60 60 60 60 60 Average Occupancy 56 52 49 50 47 Percent 92% 86% 82% 84% 79%
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Independent living saw additional units come online in calendar year 2014. The Corporation completed and opened the Villas. The addition of these new units caused available units to increase. When the opportunity presents itself the Corporation has been combining existing one bedroom smaller units into two bedroom larger square footage units. The Corporation has also been taking small alcove units out of service using those as administrative offices. Occupancy of the independent living facility has remained over the last three Fiscal Years at 94% or greater.
Assisted Living has remained steady and full throughout the last three Fiscal Years at 94% or greater.
The Health Care Center has seen a decline in overall occupancy in the last three Fiscal Years, from as high as 92% in Fiscal Year 2012 to 82% for the just ended Fiscal Year 2014. The decline is due to a combination of factors, which primarily consist of the low number of private rooms relative to competitors, purposely leaving rooms unoccupied in anticipation of renovations, and holding rooms open for skilled rehabilitation. In addition, with only 12 private rooms, the availability of private rooms upon request by prospective residents is sometimes not possible.
Payor Mix
The following chart shows the average mix of residents of the skilled nursing beds for the last three Fiscal Years and for the three-month periods ended September 30, 2013 and 2014.
The Corporation maintains financial records on the basis of a Fiscal Year ending June 30. The financial statements for the Corporation attached as Appendix B to this Official Statement for the Fiscal Years ended June 30, 2012, 2013 and 2014 have been audited by Plante & Moran, PLLC.
As of the date of this Official Statement, the Corporation represents that there has been no material adverse change in its financial condition since the date of the last audited financial statements attached to the Official Statement as Appendix B.
Summary of Balance Sheet
The following summary of balance sheets of the Corporation for the last three Fiscal Years ended June 30, 2014, was derived from the audited financial statements of the Corporation. This summary should be read in conjunction with the audited financial statements and related notes included in this
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Official Statement as Appendix B. The information for the three months ended September 30, 2013 and 2014 was derived from the internal unaudited financial statements of the Corporation.
Fiscal Year Ended June 30, Three Months Ended Sept 30, June 30, September 30,
Balance Sheet: 2012 (Audited)
2013 (Audited)
2014 (Audited)
2013 (Unaudited)
2014 (Unaudited)
Cash & Cash Equivalents $7,087,131 $5,564,446 $9,237,296 $6,275,001 $8,911,965 Investments 33,472,308 37,643,314 41,291,502 38,104,294 40,920,478 Assets Limited as to Use 1,673,046 1,854,629 1,960,420 2,073,040 2,146,705 Net PP&E 29,559,371 31,609,844 34,014,311 31,875,946 33,428,108 Other Assets 4,552,661 4,828,834 2,661,056 5,729,294 3,424,150 Total Assets $76,344,517 $81,501,067 $89,164,585 $84,057,575 $88,831,406 Current Liabilities $6,493,495 $6,324,981 $6,036,606 $6,769,589 $6,109,514 Long-Term Debt 26,535,000 25,750,000 24,930,000 25,750,000 24,930,000 Long-Term Entrance Fee Liabilities 21,799,866 22,740,441 25,588,156 22,749,932 25,130,850 Provision for Interest Rate Swap 1,335,147 931,456 796,081 896,015 724,566 Total Net Assets 20,181,009 25,754,189 31,813,742 27,892,039 31,936,476 Total Liabilities and Net Assets $76,344,517 $81,501,067 $89,164,585 $84,057,575 $88,831,406
Summary of Statement of Cash Flows
The following summary of cash flows of the Corporation for the last three Fiscal Years ended June 30, 2014 was derived from the audited financial statements of the Corporation. This summary should be read in conjunction with the audited financial statements and related notes included in this Official Statement as Appendix B. The information for the three-month periods ended September 30, 2013 and September 30, 2014 was derived from the internal unaudited financial statements of the Corporation.
Fiscal Year Ended June 30, Three Months Ended Sept 30, 2012
(Audited) 2013
(Audited) 2014
(Audited) 2013
(Unaudited) 2014
(Unaudited)
Increase in Net Assets $2,118,417 $5,573,180 $6,059,553 $2,137,479 $122,737 Depreciation and Amortization 1,582,028 1,687,180 1,833,488 419,746 486,346 Realized/Unrealized gains on investments (42,006) (1,963,815) (3,692,125) (1,319,877) 502,479 Amortization of Entrance Fees (3,639,809) (3,671,245) (3,580,475) (900,000) (900,000) Change in Assets & Liabilities 817,552 (1,285,166) 551,615 (403,655) (335,384)
Net Increase (Decrease) in Cash & Equivalents $964,361 ($1,522,685) $3,672,850 $710,555 ($325,331) Cash & Equivalents – Beginning of Year $6,122,770 $7,087,131 $5,564,446 $5,564,446 $9,237,296
Cash & Equivalents – End of Year $7,087,131 $5,564,446 $9,237,296 $6,275,001 $8,911,965
Initial Entrance Fees of $328,000 (2012), $2,468,232 (2013), and $2,815,300 (2014) related to the River Point Villas are included in “Entrance Fees Collected” above.
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Summary of Revenues and Expenses
The following summary of revenues and expenses and non-operating gains of the Corporation for the last three Fiscal Years ended June 30, 2014 was derived from the audited financial statements of the Corporation. This summary should be read in conjunction with the audited financial statements and related notes included in this Official Statement as Appendix B. The information for the three-month periods ended September 30, 2013 and September 30, 2014 was derived from the internal unaudited financial statements of the Corporation.
Fiscal Year Ended June 30, Three Months Ended Sept 30,
Home Service Revenue 260,401 318,255 393,297 91,659 96,536 Other Revenue 24,552 26,531 29,509 4,313 9,615 Total operating revenue $18,267,219 $19,083,769 $19,169,487 $4,834,285 $4,815,425
Expenses Nursing and resident care $5,304,827 $5,541,205 $5,825,748 $1,379,004 $1,438,587 Dietary 2,842,642 2,868,591 3,030,785 760,057 768,287 Housekeeping and Laundry 723,196 704,941 751,618 184,460 192,616 Plant Operation and maintenance 1,948,558 1,963,182 2,222,813 494,246 529,790 General and administrative 2,767,924 3,009,005 3,669,651 823,377 832,332 Depreciation and Amortization 1,582,028 1,687,180 1,833,488 419,746 486,346
Interest 793,621 765,018 552,324 154,827 127,706
Total operating expenses $15,962,796 $16,539,122 $17,886,427 $4,215,717 $4,375,664 Income from operations $2,304,423 $2,544,647 $1,283,060 $618,568 $439,761 Change in Fair Value of Interest Rate Swap agreement ($400,896) 403,691 135,375 35,441 71,515 Non-operating Income (Expenses)
Interest Income $529,295 $740,980 $1,068,698 $175,298 $178,429 Contributions 4,958 30,413 10,647 43,200 1,460 Realized gain on sale of investments 3,228 973,350 581,580 164,885 90,701
Unrealized gain on investments 38,778 990,465 3,110,545 1,154,992 (593,180)
Other expense (394,876) (172,119) (192,620) (54,905) (59,322) Total non-operating income/(expense) $181,383 $2,563,089 $4,578,850 $1,483,470 ($381,912)
Debt Service Coverage Ratio and Other Financial Ratios
The following table reflects debt service coverage ratios and other financial ratios for the Corporation for the periods indicated. The table has been prepared by management of the Corporation and such ratios have been calculated in accordance with the provisions of the Master Indenture. The following summary was derived from the audited financial statements of the Corporation. This summary
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should be read in conjunction with the audited financial statements and related notes included in this Official Statement as Appendix B.
Fiscal Year Ended June 30, 2012 2013 2014
Debt Service Coverage Ratio
Change in Unrestricted Net Assets - Performance Earnings $2,084,910 $5,511,427 $5,854,300
Plus:
Entrance Fees Received, Net of Initial Entrance Fees (1) $3,952,719 $2,837,241 $3,897,884
Pro Forma Interest Expense $1,489,606 $1,489,606 $1,489,606
Historical Pro Forma Number of Days Cash on Hand 1,095 1,127 1,207
(1) Amount shown net of Initial Entrance Fees of $328,000 (2012), $2,468,232 (2013), and $2,815,300 (2014). (2) Includes $4,748,900 of Series 2014 Bond proceeds used to reimburse the Corporation for prior capital expenditures, less the equity
contribution of $77,837 used to fund a portion of issuance costs. See “Plan of Finance” herein.
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Management’s Discussion of Recent Financial Performance
Fiscal Year ended June 30, 2012. Operating revenue in 2012 increased by 2.1% over Fiscal Year 2011. Operating Expenses saw an increase of 2.2% year over year. Increases in the nursing and resident care expense of $217,000 and General and Administrative expense of $238,000 were offset by a decrease in Interest Expense of approximately $320,000. Operating income was consistent with Fiscal Year 2011 at a profit of approximately $2.3 million. Cash flow was positive by $965,000.
Fiscal Year ended June 30, 2013. This fiscal year’s operating revenue saw a 4.5% increase from the prior year. Skilled nursing led the increase with a 9.5% increase ($348,000). This was due to a better margin mix of residents. Higher profit margin residents of private, Medicare A and Insurance increased while decreasing Lifecare and Medicaid resident numbers. The Corporation also changed therapy providers during the year and saw a significant increase in therapy revenue.
Operating Expenses increased 3.6%. There was additional therapy expense as a result of increased utilization and change in therapy providers. In addition, there was a one-time $119,000 adjustment in real estate taxes due to the loss on appeal of an exemption request. Operating income increased slightly to a profit of approximately $2.5 million. Other income led by our swap valuation adjustment and portfolio gains led to an overall bottom line performance earnings of $5.5 million.
Construction on the 16 Villas started in earnest during the year. While cash flow from operations was positive, overall cash flow was negative as the Villas infrastructure and the first eight Villas were completed during the year and the remaining eights Villas were in construction at year end. Total entrance fees collected were $2.8 million related to the new Villas through June 30, 2013, one of which was received in June 2013 (Fiscal Year 2012).
Fiscal Year ended June 30, 2014. Fiscal Year 2014 was a year of transition. Leadership staff saw significant turnover from long tenured management leaders, including four retirements. New leadership added during the year includes the Executive Director, Health Care Administrator, Director of Finance and the Director of Marketing.
The 2014 fiscal year revenue increased 0.4% over Fiscal Year 2013. The small overall increase is due to a drop in skilled revenue of 7.3% (negative $293,000). That drop was offset by a 3.4% increase in independent living revenue of $302,900. Average census in skilled nursing dropped by three residents per day and the mix continued to change towards a managed care model with a 50/50 split of skilled residents between traditional Medicare Part A and Insurance. The insurance contracts pay on average about $150 per day less than traditional Medicare Part A.
Operating expense increased by 8.1% year over year. Several large extraordinary expenses occurred during Fiscal Year 2014 totaling over $600,000 in additional expense. Due to an Accounts Receivable billing issue, a bad debt allowance provision of $300,000 was booked, and approximately $60,000 of outside billing support was utilized in the collection effort. The write off of prior year strategic planning expense of $60,000 was incurred. Due to the turnover in management staff, recruiting costs were up by $40,000. The new Administrator of the Health Care Center utilized $70,000 on outside consulting for additional training of staff, which helped to reclaim a five-star rating from the Centers for Medicare and Medicaid Services (CMS). The extraordinarily cold winter resulted in pipes freezing and bursting and utility cost increases of a combined $50,000. A new Information Technology position was created late in the Fiscal Year resulting in additional spending of $25,000. Other income portfolio gains of $3.7 million in realized and unrealized gains and an additional $1.1 million in interest income led to an overall bottom line performance earnings of $6 million.
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Even with the significant extraordinary expense in Fiscal Year 2014, cash flow from operations was still positive by $1.2 million. The eight remaining Villas were completed and the resulting entrance fee collection on those units was $2.8 million bringing the total new entrance fees on the 16 Villas to $5.6 million.
Comparison of Three Months ended September 30, 2013 and September 30, 2014. The small overall decrease in revenue for the comparative period is due to a drop in skilled revenue of 11.2% (negative $109,000). This is a continuing trend from the Fiscal Year 2014 skilled revenue.
Operating expense increased by 4.5% for the comparative period. Most of the expense areas were similar with Fiscal Year 2014’s total spending. Depreciation experienced a 24.6% increase ($96,000) due to the addition of the 16 Villas. Eight of the units began depreciating in July 2013, and eight more began in November 2013. Operating income was at $440,000 and performance earnings were $129,000. The total non-operating results were negative due to an unrealized loss on the investment portfolio through September, 2014 of a negative $593,000 as compared to an unrealized gain through September 2013 of $1,155,000.
Budgeting Process
In February of each year, the Corporation begins the process of developing its annual budget for the following year with a budget kickoff meeting with the leadership staff. Various other inputs are also obtained that include analyzing its current financial condition, including its revenue stream, payor mix, pricing levels and occupancy rate, to establish the assumptions on which the budget will be based. The Corporation also reviews wage surveys to determine whether the new budget should reflect additional wage adjustments to stay competitive in the market. The assumptions are then approved by the Board of Directors. Detailed schedules of projected expenses based on these assumptions, along with an actual three-year trend of expenses, are then distributed to the department heads of each of the Corporation’s departments. The department heads work with the Executive Director and Director of Finance to revise and fine tune their departmental projected operating expenses, labor and capital needs for the following year. This information is then compiled into a draft budget and presented to the Finance Committee for its review and approval. After Finance Committee approval, the annual budget is presented to Board of Directors in May for acceptance. A final presentation is made to the residents to share the results of the budget process and the impact on monthly fees. A formal letter is issued by Executive Director announcing the fee increase to both the current and prospective residents.
Historical and Future Capital Expenditures
As part of the annual budgeting process, the Corporation’s Board of Directors’ approves an annual capital replacement budget. The main component of every capital budget includes refurbishment of existing resident living units through replacement of cabinetry, and a paint and carpet replacement program. Several of the significant items included on the Fiscal Year 2015 budget is the re-cabling of the entire campus for internet and television, as well as the purchase of two new campus vehicles. Total net property and equipment purchases for the past three completed fiscal years are as follows: Fiscal Year 2012 $2,798,860, Fiscal Year 2013 $3,099,656 and Fiscal Year 2014 $2,445,771.
Charitable Care
The Corporation has established a Resident Benevolent Fund that is available to provide financial assistance to those residents who, through no fault of their own, exhaust their resources and are no longer able to afford the Corporation’s fees. The Corporation’s Resident Benevolent Fund has a balance of $453,950 as of September 30, 2014. Historically, the Corporation has approximately two residents at any
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given time on financial assistance. The number of residents in need of financial assistance is expected to increase to six during Fiscal Year 2015. The annual amount spent going forward will be approximately $60,000 with six residents approved. The Fund transfers money to the operations account each month to cover the financial assistance costs.
As part of the admissions process, a comprehensive financial review is completed by the Corporation that identifies the prospective resident’s financial assets, liabilities, income and expenditures. Expenses are inflated based upon the Corporation’s past monthly fee increases. The financial analysis projects out over the prospective resident’s life expectancy and further. The analysis is also completed using another forecasting tool that has been provided by an actuarial firm. This analysis allows for multiple scenarios to be considered as part of the financial evaluation process. It will also indicate if there is a level of probability that financial assistance will be needed in the future.
The Corporation expended the following amounts on charity care for the Fiscal Years 2012, 2013 and 2014 and the three-month period ended September 30, 2014:
Charity Care
2012
2013
2014
Three Months Ended September 30, 2014
$21,752 $19,524 $19,571 $5,313
Fundraising Efforts
The Village is engaging a more systematic approach to fundraising than it has in the past, including resident awareness of needs, consideration of naming gifts, and a capital campaign. Four current funds exist: benevolent care, health services, scholarship, and memorial. The goal will be to increase annual giving to $500,000 annually by Fiscal Year 2016. The Village employs one full time equivalent who coordinates the fundraising efforts.
Investment Policy and Historic Portfolio Returns
The Corporation’s investment policy is monitored on an ongoing basis by the Finance Committee of the Board of Directors. The investment results and asset allocations are reviewed by the Finance Committee on a quarterly basis. This includes presentations by the investment managers on a semi-annual basis but can be more frequently, if necessary. The Corporation has engaged Morgan Stanley and Budros, Ruhlin and Roe as its two primary investment managers. In addition, the Corporation’s current agreement with PNC Bank requires $10,000,000 invested with PNC Investments. Returns have been in line with investment policy benchmarks.
The Corporation’s target portfolio mix for the unrestricted portfolio is currently 60% equity, 40% fixed income. The unrealized gains (losses) of consolidated unrestricted investments (excluding the $10,000,000 invested with PNC) for the fiscal years ended June 30, 2012, 2013, 2014 and the three-month period ended September 30, 2014 are as follows:
Consolidated Annual Investment Returns
2012
2013
2014
Three Months Ended September 30, 2014
(2.55%) 16.41% 16.61% (1.18%)
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Future Plans—Corporation’s Master Plan
Over the past several months, the Corporation has developed a Master Plan with a group comprised of the Executive Committee of the Board of Directors, Senior Management, LCS Development, Ziegler and other outside consultants. This group created and presented a Campus Master Plan which contains certain financial implications. The Corporation’s Board of Director’s accepted the plan as an initial concept subject to comprising a development team and considering various options inside the approved scope. The Corporation’s Master Plan Implementation Committee is currently working through a variety of scenarios that balance efficient construction strategies with minimizing resident disruption and the Corporation’s borrowing capacity. An owner’s representative, architect, and construction manager will be selected with a goal to finalize the five-year Master Plan during 2015. The projects being considered include updating the Health Center design to create more private rooms with larger short-term rehab space, increase in independent living and assisted living capacity, and development of an additional campus center and renovated administrative areas. The Corporation anticipates completion of the projects contemplated by the Master Plan over three phases to take place following the 2015 River Point Villas Project.
The projections for the Master Plan are estimated as 60% new revenue and 40% infrastructure and remodeling with a total cost of $40-$60 million. The Corporation anticipates paying for the costs of the projects included in the Master Plan through Entrance Fees, funds of the Obligated Group, additional incurrence of debt, and fundraising. New Entrance Fee revenue is currently projected to be $25-$30 million. The time horizon for completion of the projects in the Master Plan is over the next five years. The Corporation expects to use a presale process prior to construction of any independent living units. The Corporation has received $5,000 deposits of the Entrance Fee for each of the four villas composing the 2015 River Point Villas Project. Upon the ground breaking of those villas, the deposit requirement increases to 10% of the Entrance Fee. The Corporation anticipates that an additional borrowing will take place in 2016 to fund certain projects contemplated by the second phase of the Master Plan. The amount and exact timing are yet to be determined.
The Master Plan may be revised or amended at any time. As such, there can be no assurance that the projects, any portion of the projects, and the borrowing currently contemplated in the Master Plan will occur. In addition, limits on the incurrence of additional indebtedness in the Master Indenture may preclude the Obligated Group from borrowing in the future to complete the implementation of the Master Plan.
OTHER INFORMATION
Litigation
No litigation, proceedings or investigations are pending or, to the Corporation’s knowledge, threatened against the Corporation except (i) litigation, proceedings or investigations in which the probable ultimate recoveries and the estimated costs and expenses of defense, in the opinion of Corporation management, will be entirely within the applicable insurance policy limits (subject to applicable deductibles), or (ii) litigation, proceedings or investigations which if adversely determined will not, in the opinion of Corporation management, have a material adverse effect on the operations or condition, financial or otherwise, of the Corporation. The Corporation also has advised that there is no litigation pending or, to the knowledge of the Corporation, threatened, which in any manner questions the right of the Corporation to enter into the financing described herein.
On April 11, 2014, the Ohio Attorney General’s Office issued an Investigative Demand on the Corporation. The investigation was initiated pursuant to Chapter 1331 of the Ohio Revised Code (the
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Valentine Act) to determine whether a conspiracy existed in the provision of assisted living, memory care and skilled nursing services to Ohio senior citizens. The Investigative Demand required the Corporation to answer various written interrogatories and to produce certain documents. The Corporation has complied with the Investigative Demand by answering several interrogatories, producing numerous documents, and protecting its retired computer server. The Attorney General’s investigation is ongoing. The Attorney General has advised that his staff may interview at least one retired employee of the Corporation and Life Care Services. In addition, the Attorney General may expand his investigation to include new inquiries of both the Corporation and Life Care Services. At this time, the Attorney General has neither alleged impropriety, nor proposed any sanctions, against the Corporation. Until the Attorney General concludes his investigation, the impact of his investigation on the Corporation and the materiality of its outcome, including any potential fines, penalties or other sanctions assessed against the Corporation, cannot be determined.
Insurance
The insurance maintained by the Corporation covers risks in the amounts and of the types customarily insured against by entities of similar size and risk. Risk coverage is reviewed annually by the Corporation’s Executive Director and Director of Finance with the Corporation’s insurance advisor. This information is reviewed periodically with the Finance Committee and the Board of Directors.
Actuarial Status
The Corporation has not previously retained an independent actuary to provide an actuarial study of the Facility. “Type-A” Lifecare contracts, which are provided, among other types of residency agreements, by the Corporation at the Facility, provide residents with unlimited, lifetime access to independent living, assisted living and skilled nursing care with little or no increase in the monthly fee as the result of a need for a higher level of care. It is common for providers such as the Corporation, based on the actuarial studies, to designate a portion of initial Entrance Fees and Monthly Service Fees received to be used only for providing future health care services. An actuarial study evaluates whether the cash and reserves held by the Corporation are sufficient to cover its future contractual obligations to Type A Lifecare residents of the Facility. It is common for providers of Type A Lifecare contracts to conduct actuarial studies periodically.
Although the Corporation has not historically conducted actuarial studies, Life Care Services has provided the Corporation with a population analysis periodically. In addition, Life Care Services annually prepares an analysis relating to the Corporation’s future service obligation, as described in Footnote 9 in APPENDIX B.
The Corporation has ordered an actuarial study and expects to have it completed by early December 2014. In addition, if the audited financial statements of the Obligated Group for any Fiscal Year show an increase in liabilities related to future service obligation, the Corporation is obligated by the Master Indenture to select, within 30 days of the release of such audited financial statements, a Consultant to produce an actuarial study; provided, however, that the Corporation shall not be obligated to select a Consultant to produce such an actuarial study if an actuarial study has been prepared for the Corporation within the prior three years and if the Corporation complied with its obligation to make public the executive summary of such actuarial study. See “SUMMARY OF PRINCIPAL DOCUMENTS – Summary of Certain Provisions of the Master Indenture – Financial Statements and Related Matters” in APPENDIX C. Pursuant to the Master Indenture and the Disclosure Undertaking, the Corporation is required to provide, as part of its annual reporting, an executive summary of any actuarial studies received by the Obligated Group during the preceding Fiscal Year, if any.
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Mortgaged Property
Under the Mortgage, the Corporation has granted in favor of the Master Trustee, (i) a first mortgage lien on the real property on which the Facility is located, except for certain excluded property and (ii) a security interest in the personal property and fixtures located on the real property on which the Facility is located (together, the “Mortgaged Property”), in each case subject to Permitted Encumbrances and certain excluded property, as security for the payment of the Series 2014 Note and all other Notes issued under the Master Indenture.
Excluded Property
Under the Master Indenture, the Corporation has designated certain of its property as “Excluded Property” which is not subject to the covenants and restrictions contained in the Master Indenture, and which is not included in the Mortgaged Property. The Excluded Property currently includes the real and personal property owned by Birchton and Home Care.
APPENDIX B
OBLIGATED GROUP’S AUDITED FINANCIAL STATEMENTS FOR THE YEARS ENDED JUNE 30, 2012, 2013 and 2014
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FFriendship Village of Dublin, Ohio, Inc.
Consolidated Financial Report
June 30, 2014
FFriendship Village of Dublin, Ohio, Inc.
Contents
Report Letter 1
Consolidated Financial Statements
Balance Sheet 2
Statement of Activities 3
Statement of Changes in Net Assets 4
Statement of Cash Flows 5
Notes to Consolidated Financial Statements 6-19
Independent Auditor's Report
To the Board of DirectorsFriendship Village of Dublin, Ohio, Inc.
We have audited the accompanying consolidated financial statements of Friendship Village of Dublin,Ohio, Inc. (the "Village"), which comprise the consolidated balance sheet as of June 30, 2012, 2013, and2014 and the related consolidated statements of activities, changes in net assets, and cash flows for theyears then ended, and the related notes to the consolidated financial statements.
Management’s Responsibility for the Consolidated Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financialstatements in accordance with accounting principles generally accepted in the United States of America;this includes the design, implementation, and maintenance of internal control relevant to the preparationand fair presentation of consolidated financial statements that are free from material misstatement,whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on ouraudits. We conducted our audits in accordance with auditing standards generally accepted in the UnitedStates of America. Those standards require that we plan and perform the audits to obtain reasonableassurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures inthe consolidated financial statements. The procedures selected depend on the auditor’s judgment,including the assessment of the risks of material misstatement of the consolidated financial statements,whether due to fraud or error. In making those risk assessments, the auditor considers internal controlrelevant to the entity’s preparation and fair presentation of the consolidated financial statements in orderto design audit procedures that are appropriate in the circumstances, but not for the purpose ofexpressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express nosuch opinion. An audit also includes evaluating the appropriateness of accounting policies used and thereasonableness of significant accounting estimates made by management, as well as evaluating the overallpresentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the financial position of Friendship Village of Dublin, Ohio, Inc. as of June 30, 2012, 2013, and2014 and the consolidated results of its operations and its cash flows for the years then ended, inaccordance with accounting principles generally accepted in the United States of America.
October 1, 2014
1
FFriendship Village of Dublin, Ohio, Inc.
Consolidated Balance Sheet
June 30, 2012 June 30, 2013 June 30, 2014
Assets
Current AssetsCash and cash equivalents $ 7,087,131 $ 5,564,446 $ 9,237,296Investments (Note 4) 33,472,308 37,643,314 41,291,502Resident accounts receivable - Net (Note 3) 768,683 1,321,982 709,675Current portion of assets limited as to use (Note 4) 405,813 426,242 446,644Prepaid and other assets 321,376 332,247 200,885
Total current assets 42,055,311 45,288,231 51,886,002
Assets Limited as to Use - Net of current portion (Note 4) 1,267,233 1,428,387 1,513,776
Property and Equipment - Net (Note 5) 29,559,371 31,609,844 34,014,311
OtherDeferred financing costs 493,661 433,861 417,100Property held for development (Note 6) 2,968,941 2,740,744 1,333,396
Total assets $ 76,344,517 $ 81,501,067 $ 89,164,585
Total operating revenue 18,267,219 19,083,769 19,169,487
Operating ExpensesNursing and resident care 5,304,827 5,541,205 5,825,748Dietary 2,842,642 2,868,591 3,030,785Housekeeping and laundry 723,196 704,941 751,618Plant operation and maintenance 1,948,558 1,963,182 2,222,813General and administrative 2,767,924 3,009,005 3,669,651Depreciation and amortization 1,582,028 1,687,180 1,833,488Interest 793,621 765,018 552,324
Total operating expenses (Note 11) 15,962,796 16,539,122 17,886,427
Operating Income 2,304,423 2,544,647 1,283,060
Change in Fair Value of Interest Rate Swap Agreement(Note 8) (400,896) 403,691 135,375
Nonoperating Income (Expenses)Interest income 529,295 740,980 1,068,698Contributions 4,958 30,413 10,647Realized gain on sale of investments 3,228 973,350 581,580Unrealized gain on investments 38,778 990,465 3,110,545Other expense (394,876) (172,119) (192,620)
Total nonoperating income 181,383 2,563,089 4,578,850
Other Changes in Unrestricted Net Assets - - (142,985)
Increase in Unrestricted Net Assets $ 2,084,910 $ 5,511,427 $ 5,854,300
See Notes to Consolidated Financial Statements. 3
FFriendship Village of Dublin, Ohio, Inc.
Consolidated Statement of Changes in Net Assets
Year EndedJune 30, 2012 June 30, 2013 June 30, 2014
Unrestricted Net AssetsPerformance earnings $ 2,084,910 $ 5,511,427 $ 5,997,285
Other changes in unrestricted net assets - - (142,985)
Increase in Unrestricted Net Assets 2,084,910 5,511,427 5,854,300
Temporarily Restricted Net AssetsRestricted contributions 91,891 100,859 95,835Restricted investment income 3,509 2,355 1,293Present value adjustment of endowment annuity payable (61,893) (41,461) (34,860)Other changes in temporarily restricted net assets - - 142,985
Increase in Temporarily Restricted Net Assets 33,507 61,753 205,253
Increase in Net Assets 2,118,417 5,573,180 6,059,553
Net Assets - Beginning of year 18,062,592 20,181,009 25,754,189
Net Assets - End of year $ 20,181,009 $ 25,754,189 $ 31,813,742
See Notes to Consolidated Financial Statements. 4
FFriendship Village of Dublin, Ohio, Inc.
Consolidated Statement of Cash Flows
Year EndedJune 30, 2012 June 30, 2013 June 30, 2014
Cash Flows from Operating ActivitiesIncrease in net assets $ 2,118,417 $ 5,573,180 $ 6,059,553Adjustments to reconcile increase in net assets to net cash from
operating activities:Depreciation and amortization 1,582,028 1,687,180 1,833,488Realized gain on sale of investments (3,228) (973,350) (581,580)Unrealized gain on investments (38,778) (990,465) (3,110,545)Change in fair value of swap agreement 400,896 (403,691) (135,375)Amortization of deferred revenue from entrance fees (3,639,809) (3,671,245) (3,580,475)Provision for bad debts 5,979 70,377 300,000Changes in assets and liabilities which (used) provided cash:
Resident accounts receivable (209,170) (623,676) 312,307Prepaid and other assets (27,948) (10,871) 131,362Accounts payable 486,330 (212,899) (8,218)Accrued and other liabilities 161,465 (104,406) (48,461)
Net cash provided by operating activities 836,182 340,134 1,172,056
Cash Flows from Investing ActivitiesPurchase of property and equipment (2,798,860) (3,099,656) (2,445,771)Net change in assets limited as to use (109,668) (181,583) (105,791)Net change in investments (295,749) (2,207,191) 43,937Purchase of property held for development - (350,000) (321,371)
Net cash used in investing activities (3,204,277) (5,838,430) (2,828,996)
Cash Flows from Financing ActivitiesChange in entrance fee deposits 39,777 22,213 (144,523)Repayment of long-term debt (720,000) (750,000) (785,000)Change in gift annuities payable 9,332 (3,245) (40,230)Entrance fees collected 4,280,719 5,305,473 6,713,184Entrance fees refunded (277,372) (598,830) (366,937)Payment of financing costs - - (46,704)
Net cash provided by financing activities 3,332,456 3,975,611 5,329,790
Net Increase (Decrease) in Cash and Cash Equivalents 964,361 (1,522,685) 3,672,850
Cash and Cash Equivalents - Beginning of year 6,122,770 7,087,131 5,564,446
Cash and Cash Equivalents - End of year $ 7,087,131 $ 5,564,446 $ 9,237,296
Supplemental Cash Flow Information - Cash paid for interest $ 794,542 $ 768,725 $ 550,047
See Notes to Consolidated Financial Statements. 5
FFriendship Village of Dublin, Ohio, Inc.
Notes to Consolidated Financial StatementsJune 30, 2012, 2013, and 2014
Note 1 - Nature of Business and Significant Accounting Policies
Friendship Village of Dublin, Ohio, Inc. (the "Village") is a not-for-profit corporation,organized under Section 501(c)(3) of the Internal Revenue Code, incorporated underthe laws of the State of Ohio in 1978 to provide housing, health care, home health, andother related services to the elderly. The Village consists of 244 apartments, a 60-bedskilled nursing facility, a 46-unit assisted-living facility, and 16 villas.
The Village operates under the "life care" concept whereby residents enter into aresidency agreement with the Village which requires payment of a one-time entrancefee and an adjustable monthly service fee. Generally, these fees entitle the residents tothe use and privileges of the Village for life. The residents do not acquire an interest inthe real estate property owned by the Village.
Under an agreement with Life Care Services, LLC (LCS), the Village utilizes LCS tomanage the Village's operations. LCS receives a monthly management fee for theseservices which include, but are not limited to, information systems, marketing, riskmanagement, and financial systems. In addition, LCS is reimbursed for authorizedexpenditures incurred on behalf of the Village. The management fee expense for theyears ended June 30, 2012, 2013, and 2014 approximated $300,000, $312,000, and$324,000, respectively. Reimbursement for authorized expenditures during 2012, 2013,and 2014 was approximately $286,000, $300,000, and $369,000, respectively.
Effective September 25, 2007, the Village became the sole owner of Birchton, LLC,which was set up to hold and develop real estate in order to carry on the purpose of theVillage (see Notes 5 and 6).
Effective May 16, 2014, the Village became the sole owner of Friendship Village ofDublin Home Care, LLC, which was set up to deliver home care services, primarily toresidents of the Village.
Basis of Consolidation - The accompanying consolidated financial statements includethe accounts of Friendship Village of Dublin, Ohio, Inc. and its subsidiary as describedabove. All significant intercompany transactions and balances have been eliminated inconsolidation.
Cash and Cash Equivalents - The Village considers all highly liquid debt instrumentspurchased with a maturity of three months or less to be cash equivalents, except forthose included in investments and assets limited as to use.
Accounts Receivable - Accounts receivable are stated at gross charges, less acontractual allowance, if applicable. An allowance for doubtful accounts is establishedbased on a specific assessment of all invoices that remain unpaid following normalcustomer payment periods. All amounts deemed to be uncollectible are charged againstthe allowance for doubtful accounts in the period that determination is made.
6
FFriendship Village of Dublin, Ohio, Inc.
Notes to Consolidated Financial StatementsJune 30, 2012, 2013, and 2014
Note 1 - Nature of Business and Significant Accounting Policies(Continued)
Investments and Assets Limited as to Use - Investments are measured at fair valuein the consolidated balance sheet. The Village determines fair value using the methodsdescribed in Note 12. Assets limited as to use consist of funds held by the trustee andfunds restricted by donors and designated by the board of directors. Funds held by thetrustee are principally for debt service. The Village considers all investments held astrading securities.
Property and Equipment - Property and equipment purchases are recorded at cost.Donated property and equipment are recorded at the estimated fair market value at thetime of donation. Certain costs that are capitalized during construction have beenincluded in buildings and are being amortized over the respective lives of the projects.Depreciation is provided at rates designed to amortize the carrying amount of an assetover its estimated useful life using the straight-line method.
Deferred Financing Costs - Certain expenses that were incurred in relation to theissuance of the bonds payable have been capitalized and are being amortized over theterm of bonds. In August 2013, in association with the extension of the letters of credit(see Note 7), the Village incurred $46,704 of additional financing costs. Amortizationtotaled $59,799, $59,800, and $63,500 for the years ended June 30, 2012, 2013, and2014, respectively. The accumulated amortization of bond issuance costs at June 30,2012, 2013, and 2014 totaled $435,372, $495,172, and $558,672, respectively.
Interest Rate Swap - The Village entered into an interest rate swap transaction toreduce economic risks associated with variability in cash outflows for interest requiredunder provisions of variable rate revenue bonds. Interest rate swaps are recognized asassets or liabilities at fair value. Realized gains and losses on the interest rate swap areclassified as a component of income from operations and are included as part of interestexpense in the consolidated statement of activities. Unrealized changes in the fair valueof the interest rate swap are reported separately in determining the performanceearnings.
Gift Annuity Obligations - The Village has entered into gift annuity agreementswhereby, upon receipt of an annuity gift, the Village pays the donor an annuity for theremainder of his or her life. At the time of the gift, the assets are recorded at their fairmarket value and an obligation is established for the present value of the annuitypayments estimated to occur based upon the donor's life expectancy. The discount rateused at June 30, 2012, 2013, and 2014 was 3.8 percent. The difference between the giftand the obligation is recognized as unrestricted contributions or as an increase inrestricted net assets based upon the donor-imposed restrictions, if any.
7
FFriendship Village of Dublin, Ohio, Inc.
Notes to Consolidated Financial StatementsJune 30, 2012, 2013, and 2014
Note 1 - Nature of Business and Significant Accounting Policies(Continued)
Skilled Revenue - One of the Village's activities is operating a long-term healthcarefacility primarily for its residents. Revenue is derived from participation in the Medicaidand Medicare programs, as well as from private-pay residents and insurance companies.Revenue is recorded at standard billing rates and differences between billing rates andamounts paid under these programs are recorded as contractual adjustments. Amountsearned under the Medicaid and Medicare programs make up a portion of net skilledrevenue earned during each year, as follows:
2012 2013 2014
Percent of revenue:Medicaid %17 %16 %20Medicare 22 24 22Private and insurance 61 60 58
The payment methodology and amounts earned related to these programs are based oncost and clinical assessments that are subject to review and final approval by Medicaidand Medicare. Any adjustment that is a result of this final review and approval will berecorded in the period in which the adjustment is made. In the opinion of management,adequate provision has been made for any adjustments that may result from such third-party review.
Services rendered to Medicare program beneficiaries are paid at prospectivelydetermined rates based upon clinical assessments completed by the Village.
Services rendered to Ohio Medicaid program beneficiaries are paid at per diem ratesprospectively determined by the Ohio Department of Job and Family Services, adjustedsemiannually for changes in resident acuity.
Laws and regulations governing the Medicare and Medicaid programs are complex andsubject to interpretation. Management believes it is in compliance with all applicablelaws and regulations and is not aware of any pending or threatened investigationsinvolving allegations of potential wrongdoings. While no such regulatory inquiries havebeen made, compliance with such laws and regulations can be subject to futuregovernment review and interpretation. Noncompliance with such laws and regulationsmay result in significant regulatory action including fines, penalties, and exclusion fromthe Medicare and Medicaid programs.
Hardship Discounts - The Village provides monthly discounts to residents who meetcertain criteria under its hardship discount policy. Under the policy, residents mustsubmit an application for the discount, which is reviewed and approved or denied basedon individual circumstances. Hardship discounts total approximately $22,000 for theyear ended June 30, 2012, and $19,500 for both years ended June 30, 2013 and 2014.
8
FFriendship Village of Dublin, Ohio, Inc.
Notes to Consolidated Financial StatementsJune 30, 2012, 2013, and 2014
Note 1 - Nature of Business and Significant Accounting Policies(Continued)
Restricted and Unrestricted Revenue and Support - Contributions are recorded asunrestricted, temporarily restricted, or permanently restricted support, depending onthe existence and/or nature of any donor restrictions. Support that is restricted by thedonor is shown as an increase in unrestricted net assets if the restriction expires in thereporting period in which the support is recognized. All other donor-restricted supportis reported as an increase in temporarily or permanently restricted net assets,depending on the nature of the restrictions. When a restriction expires (that is, when astipulated time restriction ends or purpose restriction is accomplished), temporarilyrestricted net assets are reclassified to unrestricted net assets and reported in thestatement of activities as net assets released from restrictions.
Performance Earnings - Performance earnings report the results of operations of theentire Village. In addition to the income from resident care operations, performanceearnings include investment income, realized and unrealized losses on investments, andother items. Consistent with industry practice, net assets released from restriction thatpertain to long-lived assets are excluded from performance earnings.
Donated Services - No amounts have been reflected in the consolidated financialstatements for donated services. Many individuals volunteer their time and perform avariety of tasks that assist the Village with specific programs related to resident care andactivities. The Village receives more than 1,000 volunteer hours annually which do notmeet the criteria for recording as revenue.
Income Taxes - The Internal Revenue Service has ruled that the Village is exempt fromfederal income taxes under Section 501(c)(3) of the Internal Revenue Code. The Villageis not currently under examination by the Internal Revenue Service or any state or localtax authorities. The Village's federal tax returns for the years ended prior to June 30,2011 are no longer subject to examination.
Accounting principles generally accepted in the United States of America requiremanagement to evaluate tax positions taken by the Village and recognize a tax liability ifthe Village has taken an uncertain position that more likely than not would not besustained upon examination by the IRS or other applicable taxing authorities.Management has analyzed the tax positions taken by the Village and has concluded thatas of June 30, 2014, there are no uncertain positions taken or expected to be taken thatwould require recognition of a liability or disclosure in the consolidated financialstatements.
9
FFriendship Village of Dublin, Ohio, Inc.
Notes to Consolidated Financial StatementsJune 30, 2012, 2013, and 2014
Note 1 - Nature of Business and Significant Accounting Policies(Continued)
Use of Estimates - The preparation of consolidated financial statements in conformitywith accounting principles generally accepted in the United States of America requiresmanagement to make estimates and assumptions that affect the reported amounts ofassets and liabilities and disclosure of contingent assets and liabilities at the date of theconsolidated financial statements and the reported amounts of revenue and expensesduring the reporting period. Actual results could differ from those estimates.
Subsequent Events - The consolidated financial statements and related disclosuresinclude evaluation of events up through and including October 1, 2014, which is the datethe consolidated financial statements were available to be issued.
Note 2 - Cash in Excess of Insured Limits
The Village maintains cash and investment balances at several financial institutionslocated in the vicinity of Columbus, Ohio. Accounts at each institution are insured bythe Federal Deposit Insurance Corporation up to $250,000 per institution. As of June30, 2014, the consolidated uninsured cash balances approximate $10,443,000.
Note 3 - Resident Accounts Receivable
The details of resident accounts receivable are set forth below:
Net resident accounts receivable $ 768,683 $ 1,321,982 $ 709,675
The Village provides services without collateral to its residents, most of whom are localresidents and insured under third-party payor agreements. The mix of receivables fromresidents and third-party payors is as follows:
Net carryingamount $29,559,371 $31,609,844 $34,014,311
Depreciation expense on property and equipment totaled $1,522,229, $1,627,380, and$1,769,988 in 2012, 2013 and 2014, respectively.
Note 6 - Property Held for Development
Property held for development totaling $2,968,941 at June 30, 2012, $2,740,744 at June30, 2013, and $1,333,396 at June 30, 2014 represents the cost and holding periodinterest for various pieces of property adjacent to the Village, purchased throughBirchton, LLC (see Note 1), from 2007 through June 30, 2014. During 2013 and 2014,$578,197 and $1,728,744, respectively, of the property held for development wasplaced in service in conjunction with the completion of the first, second, and third phaseof the villas. Also, during 2013 and 2014, the Village acquired approximately $350,000and $321,000, respectively, of additional property held for development.
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FFriendship Village of Dublin, Ohio, Inc.
Notes to Consolidated Financial StatementsJune 30, 2012, 2013, and 2014
Note 7 - Long-term Debt
Long-term debt at June 30 is as follows:
2012 2013 2014Bonds payable:
Health Care Facilities Revenue Bonds Series 2004A $ 9,660,000 $ 8,965,000 $ 8,235,000Health Care Facilities Revenue Bonds Series 2004B 17,625,000 17,570,000 17,515,000
Total 27,285,000 26,535,000 25,750,000
Less current portion (750,000) (785,000) (820,000)
In September 2004, the Village issued $13,805,000 of Adjustable Rate Demand HealthCare Facilities Revenue Refunding Bonds, Series 2004A, consisting of serial bonds withannual maturities ranging from $765,000 to $1,080,000 in 2022 (maturity). Theproceeds were used to refund and retire the outstanding principal amount of the 1997Revenue Bonds.
In December 2004, the Village issued $19,820,000 of Adjustable Rate Demand HealthCare Facilities Revenue Bonds, Series 2004B, with annual maturities ranging from$55,000 to $1,870,000 in 2033 (maturity). The proceeds were used to fund theconstruction of the 51-unit independent-living wing.
The Series 2004A and 2004B bonds bear interest at a variable rate that is adjustableweekly by the remarketing agent and is payable on the first business day of each month.The interest rate for both the Series 2004A and Series 2004B bonds was 0.16 percent atJune 30, 2012, and 0.06 percent at both June 30, 2013 and 2014. The Village alsoentered into a swap agreement with the bank (see Note 8).
13
FFriendship Village of Dublin, Ohio, Inc.
Notes to Consolidated Financial StatementsJune 30, 2012, 2013, and 2014
Note 7 - Long-term Debt (Continued)
In connection with the Series 2004 bonds, a bank has issued irrevocable letters of credit.The letters of credit are the security for the bond holders. The owners of the Series2004A and Series 2004B bonds have the option to demand payment of their remainingoutstanding bonds. The Village has entered into remarketing agreements which requirethe remarketing agent to utilize its best efforts to remarket any such notes that may betendered for payment. In the event the Series 2004A and 2004B bonds cannot beremarketed, the letters of credit provide that the bank will make payment on theoutstanding balance. The Village then has an obligation to make payment to the bank forthe unremarketed bonds by the earlier of the date the bonds are remarketed by theremarketing agent and the proceeds thereof are delivered to the trustee, the date onwhich the bonds purchased with the proceeds of such drawing are redeemed orotherwise paid in full, the expiration dates of the letters of credit (July 15, 2018), or 367days from the date of such drawing for both the Series 2004A and Series 2004B bonds,plus accrued interest. The letters of credit require the Village to invest $10,000,000with the issuing bank and are secured by substantially all of the Village's property, rents,and equipment.
Substantially all of the Village's property and equipment are subleased from the Countyof Franklin, Ohio, governmental issuer of the Series 2004 bonds, and the appropriateassets and liabilities are recorded by the Village. The term of the sublease extendsthrough November 2034, and may be extended under the provisions of the sublease.Upon expiration of the sublease, all interest in the leased property shall be surrenderedto the Village.
The trust indentures, the subleases, and the reimbursement agreements related to theSeries 2004 bonds place certain restrictions on the Village with respect to, among otherthings, payment of insurance and taxes and sale or disposal of assets. Thereimbursement agreements also require the Village to meet certain ratios regardingdebt service coverage and days' cash on hand.
Minimum future principal payments on long-term debt as of June 30, 2014 are asfollows:
Notes to Consolidated Financial StatementsJune 30, 2012, 2013, and 2014
Note 8 - Derivative Financial Instruments
The Village is exposed to certain risks in the normal course of its business operations.The Village manages risks relating to the variability of future cash flows through the useof derivatives. The only derivative instrument used by the Village is an interest rate swap(the "swap"). The swap is used by the Village to manage the risk associated with interestrates on variable-rate borrowings and does not qualify for hedge accounting. The swapis reported in the consolidated balance sheet at fair value and all gains and lossesrecognized on interest rate swaps are included in performance earnings.
As of June 30, 2012, 2013, and 2014, the Village held a "receive variable/pay fixed"interest rate swap for a total notional amount of $9,660,000 in which the Village pays3.31 percent and receives 67 percent of LIBOR through November 2022, the expirationdate of the swap. The Village has recorded the fair value of this swap, which resulted ina liability of $1,335,147, $931,456, and $796,081 at June 30, 2012, 2013, and 2014,respectively.
For the years ended June 30, 2012, 2013, and 2014, the amount of gain or lossrecognized in performance earnings for the swap is as follows:
Amount of (Loss) GainRecognized
Reported in ConsolidatedStatement of Activities as
2012 2013 2014
Realized loss on interest rateswap agreement $ (310,940) $ (291,141) $ (294,775) Interest expense
Unrealized (loss) gain oninterest rate swap agreement (400,896) 403,691 135,375
Change in fair value of interestrate swap
Net (loss) gain $ (711,836) $ 112,550 $ (159,400)
Note 9 - Entrance Fees
Entrance fees from residency and care agreements (traditional) are recorded asdeferred revenue and amortized to income over the estimated remaining lifeexpectancy, adjusted annually, for each resident. Residency and care agreements(traditional) provide for partial refunds for up to 100 months in the event of move-outand 50 months in the event of death. Certain residency agreements (return of capital)guarantee a refund of up to 90 percent of the entrance fee after the death or move-outof the resident. The estimated refundable portion of the entrance fee is recorded as aliability until refunded and the nonrefundable portion is recorded as deferred revenuefrom entrance fees. After the first year of residency, all entrance fee refunds are dueand payable only if and when the apartment is reoccupied.
15
FFriendship Village of Dublin, Ohio, Inc.
Notes to Consolidated Financial StatementsJune 30, 2012, 2013, and 2014
Note 9 - Entrance Fees (Continued)
When a residency agreement is signed, a deposit equal to 10 percent of the entrance feeis due. The balance of the entrance fee is payable on or before the date of admission ofthe resident. Potential residents, with Village approval, may cancel their residencyagreements at any time prior to their admission.
Entrance fee refunds include estimated amounts due to current residents or theirdesignees for death or move-out refunds expected to occur within one year.
At June 30, 2012, 2013, and 2014, the gross contractual obligation from entrance feesrefundable to residents, if all contracts are terminated at that date, approximated$9,200,000, $10,245,000, and $12,610,000, respectively. Entrance fee refunds are dueand payable only if and when the apartment is reoccupied. However, these refunds mayor may not be made directly from the proceeds of the new entrance fee collected forthe reoccupied apartment.
The Village annually calculates the present value (5.5 percent discount rate used in 2012,2013, and 2014) of the net cost of future services and the use of facilities to be providedto current residents. As the present value of this net cost does not exceed the amountof recorded unamortized entrance fees at June 30, 2012, 2013, or 2014, as such, noadditional liability has been reflected in the accompanying consolidated financialstatements.
Note 10 - Retirement Plan
The Village sponsors a defined contribution plan for the benefit of all employees whowork at least 20 hours per week. Contributions to the plan by the Village range from2 percent to 3 percent of each participant's annual salary, depending on the participant'scontribution. Pension expense for the years ended June 30, 2012, 2013, and 2014approximated $60,000, $74,000, and $65,000, respectively.
Note 11 - Functional Expenses
The Village provides general healthcare services to residents within its geographiclocation including residential care, assisted living, and independent living. Expensesrelated to providing these services for the years ended June 30, 2012, 2013, and 2014are as follows:
Notes to Consolidated Financial StatementsJune 30, 2012, 2013, and 2014
Note 12 - Fair Value Measurements
A summary of the methods and significant assumptions used to estimate the fair valuesof financial instruments is as follows:
Short-term Financial Instruments - The fair values of short-term financialinstruments, including cash and cash equivalents and trade accounts receivable andpayable, approximate the carrying amounts in the accompanying consolidated financialstatements due to the short-term maturity of such instruments.
Investments - Investments are recorded at fair value in the accompanying consolidatedfinancial statements. Fair value is determined based on quoted market prices.
Interest Rate Swap - The carrying amount of the interest rate swap agreementreflects the estimated fair value based on option pricing models.
Entrance Fees - The fair value of the refundable entrance fees and deferred revenuefrom entrance fees cannot be determined due to uncertainty of ultimate repayment.
Long-term Obligations - The fair value of long-term obligations approximates thecarrying amounts in the accompanying consolidated financial statements. The carryingvalue of the debt approximates market based on current borrowing rates. Thedetermination of fair value of the long-term obligations is consistent with Level 2measurement under the fair value hierarchy.
Accounting standards require certain assets and liabilities be reported at fair value in theconsolidated financial statements and provide a framework for establishing that fairvalue. The framework for determining fair value is based on a hierarchy that prioritizesthe inputs and valuation techniques used to measure fair value.
The following tables present information about the Village’s assets and liabilitiesmeasured at fair value on a recurring basis at June 30, 2012, 2013, and 2014 and thevaluation techniques used by the Village to determine those fair values.
Fair values determined by Level 1 inputs use quoted prices in active markets for identicalassets or liabilities that the Village has the ability to access.
Fair values determined by Level 2 inputs use other inputs that are observable, eitherdirectly or indirectly. These Level 2 inputs include quoted prices for similar assets andliabilities in active markets and other inputs such as interest rates and yield curves thatare observable at commonly quoted intervals.
Level 3 inputs are unobservable inputs, including inputs that are available in situationswhere there is little, if any, market activity for the related asset. These Level 3 fair valuemeasurements are based primarily on management’s own estimates using pricingmodels, discounted cash flow methodologies, or similar techniques taking into accountthe characteristics of the asset.
17
FFriendship Village of Dublin, Ohio, Inc.
Notes to Consolidated Financial StatementsJune 30, 2012, 2013, and 2014
Note 12 - Fair Value Measurements (Continued)
In instances whereby inputs used to measure fair value fall into different levels in theabove fair value hierarchy, fair value measurements in their entirety are categorizedbased on the lowest level input that is significant to the valuation. The Village’sassessment of the significance of particular inputs to these fair value measurementsrequires judgment and considers factors specific to each asset or liability.
Assets and Liabilities Measured at Fair Value on a Recurring Basis at June 30, 2012
The fair value of the swap agreement, corporate, U.S. government, and agencyobligations at June 30, 2012, 2013, and 2014 was determined primarily based on Level 2inputs. The Level 2 inputs used in estimating the fair value of the swap agreementinclude the notional amount, effective interest rate, and maturity date. Additionally, theLevel 2 inputs of the corporate, U.S. government, and agency obligations include quotedprices for similar assets in active markets.
The Village's policy is to recognize transfers between levels of the fair value hierarchy asof the actual date of the event or change in circumstances that caused the transfer.There were no significant transfers between levels of the fair value hierarchy duringfiscal years 2012, 2013, or 2014.
The investments detailed above exclude cash equivalents of $7,940,741, $859,160, and$1,067,553 at June 30, 2012, 2013, and 2014, respectively.
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APPENDIX C
SUMMARY OF PRINCIPAL DOCUMENTS
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TABLE OF CONTENTS
PAGE
SUMMARY OF PRINCIPAL DOCUMENTS ......................................................................................................... C-1 DEFINITIONS OF CERTAIN TERMS .................................................................................................................... C-1 SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE .................................................... C-20
Payment of Principal, Premium, if any, and Interest .......................................................................................... C-21 Covenants as to Corporate Existence, Maintenance of Properties, and Similar Matters; Right of Contest ........ C-21 Insurance ............................................................................................................................................................. C-23 Rates and Charges ............................................................................................................................................... C-24 Damage or Destruction ....................................................................................................................................... C-26 Condemnation ..................................................................................................................................................... C-27 Other Provisions with Respect to Net Proceeds .................................................................................................. C-28 Merger, Consolidation, Sale or Conveyance ....................................................................................................... C-29 Financial Statements and Related Matters .......................................................................................................... C-30 Permitted Additional Indebtedness ..................................................................................................................... C-32 Calculation of Debt Service and Debt Service Coverage ................................................................................... C-37 Sale, Lease or Other Disposition of Property ...................................................................................................... C-38 Liens on Property ................................................................................................................................................ C-40 Right to Consent ................................................................................................................................................. C-40 Liquidity Covenant ............................................................................................................................................. C-40 Approval of Consultants ..................................................................................................................................... C-41 Entrance Into the Obligated Group ..................................................................................................................... C-42 Cessation of Status as a Member of the Obligated Group .................................................................................. C-43 Events of Default ................................................................................................................................................ C-44 Acceleration ........................................................................................................................................................ C-45 Remedies; Rights of Obligation Holders ............................................................................................................ C-46 Direction of Proceedings by Holders .................................................................................................................. C-46 Appointment of Receivers .................................................................................................................................. C-47 Application of Moneys ....................................................................................................................................... C-47 Remedies Vested in Master Trustee .................................................................................................................... C-48 Rights and Remedies of Obligation Holders ....................................................................................................... C-48 Termination of Proceedings ................................................................................................................................ C-49 Waiver of Events of Default ............................................................................................................................... C-49 Members’ Rights of Possession and Use of Property ......................................................................................... C-49 Related Bond Trustee or Bondholders Deemed to Be Obligation Holders ......................................................... C-49 Lock-Box Provisions .......................................................................................................................................... C-49 Resignation by the Master Trustee...................................................................................................................... C-50 Removal of the Master Trustee ........................................................................................................................... C-50 Appointment of Successor Master Trustee by the Obligation Holders; Temporary Master Trustee .................. C-50 Supplemental Master Indentures and Amendments to the Mortgage Not Requiring Consent of Obligation Holders ................................................................................................................................................................ C-51 Supplemental Master Indentures and Amendment of the Mortgage Requiring Consent of Obligation Holders C-52 Defeasance .......................................................................................................................................................... C-53 Provision for Payment of a Particular Series of Obligations or Portion Thereof ................................................ C-54 Satisfaction of Related Bonds ............................................................................................................................. C-55
SUMMARY OF CERTAIN PROVISIONS OF THE LEASE ................................................................................ C-55 Conveyance and Term ........................................................................................................................................ C-55 Rent ................................................................................................................................................................... C-55
SUMMARY OF CERTAIN PROVISIONS OF THE SUBLEASE ........................................................................ C-55 Payments to Bond Trustee .................................................................................................................................. C-55 Corporation’s Obligations Unconditional ........................................................................................................... C-56 Use of the Existing Facilities .............................................................................................................................. C-56 Repairs, Maintenance and Alterations ................................................................................................................ C-57 Effecting Changes in the Existing Facilities ....................................................................................................... C-57 Easements ........................................................................................................................................................... C-57 Release of Land .................................................................................................................................................. C-57 Events of Default ................................................................................................................................................ C-57
ii
Payment of Defaulted Amounts on Demand ...................................................................................................... C-59 Reinstatement ..................................................................................................................................................... C-59
SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE........................................................... C-60 Creation of Trust ................................................................................................................................................. C-60 Application of Series 2014 Bond Proceeds and Other Moneys .......................................................................... C-60 Funding of Debt Service Reserve Fund; Debt Service Reserve Fund Requirement ........................................... C-60 Investment of Funds ............................................................................................................................................ C-61 Events of Default ................................................................................................................................................ C-61 Acceleration ........................................................................................................................................................ C-62 Remedies; Rights of Owners of the Series 2014 Bonds ...................................................................................... C-62 Waivers of Events of Default .............................................................................................................................. C-63 Supplemental Indentures Not Requiring Consent of Owners of Series 2014 Bonds .......................................... C-63 Supplemental Indentures Requiring Consent of Owners of Series 2014 Bonds ................................................. C-64 Amendments to Lessee Documents Not Requiring Consent of Bondholders ..................................................... C-64 Amendments to Lessee Documents Requiring Consent of Bondholders ............................................................ C-65 No Amendment May Alter Series 2014 Note ..................................................................................................... C-65 Discharge of Lien................................................................................................................................................ C-65
SUMMARY OF ASSIGNMENT ............................................................................................................................ C-65 SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGE ...................................................................... C-66
General ................................................................................................................................................................ C-66 Indebtedness ....................................................................................................................................................... C-66 Impositions ......................................................................................................................................................... C-66 Compliance with Laws ....................................................................................................................................... C-67 Condition of Mortgaged Property ....................................................................................................................... C-67 Improvements ..................................................................................................................................................... C-67 Insurance ............................................................................................................................................................. C-67 Sale, Transfer or Encumbrance. .......................................................................................................................... C-67 Eminent Domain ................................................................................................................................................. C-68 Rights of the Master Trustee ............................................................................................................................... C-68 Unpaid Impositions ............................................................................................................................................. C-68 Conflict Among Agreements .............................................................................................................................. C-69 Event of Default Defined .................................................................................................................................... C-69 Remedies ............................................................................................................................................................. C-69 Costs and Expenses ............................................................................................................................................. C-71 Proceeds .............................................................................................................................................................. C-71 Receiver .............................................................................................................................................................. C-71 Rights Cumulative .............................................................................................................................................. C-72 No Merger ........................................................................................................................................................... C-72 Waivers of Corporation ...................................................................................................................................... C-72
SUMMARY OF THE TAX EXEMPTION AGREEMENT .................................................................................... C-72 SUMMARY OF THE REIMBURSEMENT AGREEMENT ................................................................................. C-72
Definitions .......................................................................................................................................................... C-73 General ................................................................................................................................................................ C-79 Covenants ........................................................................................................................................................... C-79 Defaults and Remedies ....................................................................................................................................... C-81
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APPENDIX C
SUMMARY OF PRINCIPAL DOCUMENTS
THE MASTER INDENTURE, THE LEASE, THE SUBLEASE, THE BOND INDENTURE, THE ASSIGNMENT, THE MORTGAGE AND THE TAX EXEMPTION AGREEMENT
Brief descriptions of the Master Indenture, the Lease, the Sublease, the Bond Indenture, the Assignment, the Mortgage and the Tax Exemption Agreement are included hereafter in the Official Statement. The descriptions in this Appendix C do not purport to be comprehensive or definitive. All references herein to the Master Indenture, the Lease, the Sublease, the Bond Indenture, the Assignment, the Mortgage and the Tax Exemption Agreement are qualified in their entirety by reference to each such document, copies of which are available for review prior to the issuance and delivery of the Series 2014 Bonds at the offices of the Issuer and thereafter at the offices of the Bond Trustee. All references to the Series 2014 Bonds are qualified in their entirety by reference to the definitive forms thereof and the information with respect thereto included in the Bond Indenture.
DEFINITIONS OF CERTAIN TERMS
The following are definitions of certain terms used in the Master Indenture, the Lease, the Sublease, the Bond Indenture, the Assignment, the Mortgage, the Tax Exemption Agreement and this Official Statement.
"Accelerable Instrument" means any Obligation or any mortgage, indenture, loan agreement or other instrument under which there has been issued or incurred, or by which there is secured, any Indebtedness evidenced by an Obligation, which Obligation or instrument provides that, upon the occurrence of an event of default under such Obligation or instrument, the holder thereof may request that the Master Trustee declare such Obligation or Indebtedness due and payable prior to the date on which it would otherwise become due and payable; provided that an Accelerable Instrument must have an original principal amount of at least $5,000,000.
"Act" means Chapter 140 and Section 339.15 of the Ohio Revised Code, as from time to time supplemented and amended.
"Additional Indebtedness" means Indebtedness incurred by any Member subsequent to the issuance of the Initial Obligations.
"Additional Obligations" means those Obligations that are not Initial Obligations.
"Affiliate" means a corporation, partnership, joint venture, association, business trust or similar entity (a) which controls, is controlled by or is under common control with, directly or indirectly, a Member; or (b) a majority of the members of the Directing Body of which are members of the Directing Body of a Member. For the purposes of this definition, control means with respect to: (a) a corporation having stock, the ownership, directly or indirectly, of more than 50% of the securities (as defined in Section 2(1) of the Securities Act of 1933, as amended) of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the directors of such corporation; (b) a nonprofit corporation not having stock, having the power to elect or appoint, directly or indirectly, a majority of the members of the Directing Body of such corporation; or (c) any other entity, the power to direct the management of such entity through the ownership of at least a majority of its voting securities or the right to designate or elect at least a majority of the members of its Directing Body, by contract or otherwise. For the purposes of this definition, "Directing Body" means with respect to: (a) a corporation having stock, such corporation’s board of directors and the owners, directly or indirectly, of more than 50% of the securities (as defined in Section 2(1) of the Securities Act of 1933, as amended) of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporation’s directors (both of which groups shall be considered a Directing Body); (b) a nonprofit corporation not having stock, such corporation’s members if the members have complete discretion to elect the corporation’s directors, or the corporation’s directors if the corporation’s members do not have such discretion; and (c) any other entity, its governing board or body. For the purposes of this definition, all references to directors and members shall be deemed to include all entities performing the function of directors or members however denominated.
"Assignment" means the Assignment of Rights Under Agreement of Lease and Sublease dated as of December 1, 2014 from the Issuer to the Master Trustee.
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"Authorized Lessee Representative" means such person at the time, and from time to time, designated by written certificate of the Corporation furnished to the Issuer and the Bond Trustee containing the specimen signature of such person and signed on behalf of the Corporation by an authorized officer. Such certificate may designate an alternate or alternates.
"Balloon Indebtedness" means Long-Term Indebtedness, 25% or more of the original principal amount of which matures during any consecutive 12-month period, if such maturing principal amount is not required to be amortized below such percentage by mandatory redemption or prepayment prior to such 12-month period. Balloon Indebtedness does not include Indebtedness which otherwise would be classified under the Master Indenture as Put Indebtedness.
"Bank" mean PNC Bank, National Association, its successors and assigns, as the issuer of a direct-pay letter of credit securing the payment of the principal of, and interest on, the Series 2004A Bonds, or such alternate bank or provider then providing the alternate letter of credit supporting the Series 2004A Bonds.
"Birchton" means Birchton, LLC, a limited liability company formed under the laws of the State of Ohio, and its successors and assigns.
"Bond Indenture" means the Indenture of Trust (Bond Indenture) dated as of December 1, 2014 between the Issuer and the Bond Trustee, as it may be amended or supplemented from time to time.
"Bond Trustee" means U.S. Bank National Association, or any successor thereto under either the Series 2004A Bond Indenture or the Bond Indenture.
"Bondholder," "holder," "owner" or "owner of the Series 2014 Bonds" each means the registered owner of any Series 2014 Bond.
"Bonds" or "Series 2014 Bonds" means the $23,315,000 County of Franklin, Ohio Health Care Facilities Revenue Refunding and Improvement Bonds, Series 2014 (Friendship Village of Dublin, Ohio, Inc.) initially authorized to be issued pursuant to the terms and conditions of the Bond Indenture.
"Book Value," when used with respect to Property of a Member, means the value of such Property, net of accumulated depreciation and amortization, as reflected in the most recent audited financial statements of such Member which have been prepared in accordance with generally accepted accounting principles, and, when used with respect to Property of all Members, means the aggregate of the values of such Property, net of accumulated depreciation and amortization, as reflected in the most recent audited combined or consolidated financial statements of the Obligated Group prepared in accordance with generally accepted accounting principles, provided that such aggregate shall be calculated in such a manner that no portion of the value of any Property of any Member is included more than once.
"Capitalized Lease" means any lease of real or personal property which, in accordance with generally accepted accounting principles, is required to be capitalized on the balance sheet of the lessee.
"Capitalized Rentals" means, as of the date of determination, the amount at which the aggregate Net Rentals due and to become due under a Capitalized Lease under which a Person is a lessee would be reflected as a liability on a balance sheet of such Person.
"Cash and Investments" means the sum of cash, cash equivalents, marketable securities, including without limitation board-designated assets, if any, but excluding (a) trustee-held funds other than those otherwise described in this definition, (b) donor-restricted funds to the extent that the payment of debt service on the Indebtedness of the Obligated Group would be inconsistent with the donor’s restrictions, (c) any funds pledged or otherwise subject to a security interest for Indebtedness other than the Obligations, as shown on the most recent audited or unaudited financial statements of the Obligated Group and (d) security deposits. Any amounts on deposit in a debt service reserve fund created under the Bond Indenture and any other debt service reserve fund created under a Related Bond Indenture, shall be excluded from the calculation of Cash and Investments for the purposes of determining the number of Days Cash on Hand of the Obligated Group. For purposes of calculations under the Master Indenture, an Unrestricted Contribution from an Affiliate shall be treated as being made during the period of such calculation so long as the Unrestricted Contribution is made prior to the date the applicable Officer’s Certificate is required to be delivered with respect to such calculation.
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"Code" means the Internal Revenue Code of 1986, as amended from time to time. Each reference to a section of the Code shall be deemed to include the United States Treasury Regulations, including temporary and proposed regulations relating to such section.
"Commitment Indebtedness" means the obligation of any Member to repay amounts disbursed pursuant to a commitment from a financial institution to refinance or purchase when due, when tendered or when required to be purchased (a) other Indebtedness of such Member, or (b) Indebtedness of a Person who is not a Member, which Indebtedness is guaranteed by a Guaranty of such Member or secured by or payable from amounts paid on Indebtedness of such Member, in either case which Indebtedness or Guaranty of such Member was incurred in accordance with the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Permitted Additional Indebtedness," and the obligation of any Member to pay interest payable on amounts disbursed for such purposes, plus any fees, costs or expenses payable to such financial institution for, under or in connection with such commitment, in the event of disbursement pursuant to such commitment or in connection with enforcement thereof, including without limitation any penalties payable in the event of such enforcement.
"Completion Funded Indebtedness" means any Funded Indebtedness for borrowed money: (a) incurred for the purpose of financing the completion of the acquisition, construction, remodeling, renovation or equipping of Facilities with respect to which Funded Indebtedness for borrowed money has been incurred in accordance with the provisions of the Master Indenture; and (b) with a principal amount not in excess of the amount which is required to provide a completed and equipped Facility of substantially the same type and scope contemplated at the time such prior Funded Indebtedness was originally incurred, to provide for Funded Interest during the period of construction, to provide any reserve fund relating to such Completion Funded Indebtedness and to pay the costs and expenses of issuing such Completion Funded Indebtedness.
"Construction Index" means the most recent issue of the "Dodge Construction Index for U.S. and Canadian Cities" with reference to the city in which the subject property is located (or, if such Index is not available for such city, with reference to the city located closest geographically to the city in which the subject property is located), or, if such Index is no longer published or used by the federal government in measuring costs under Medicare or Medicaid programs, such other index which is certified to be comparable and appropriate by the Obligated Group Agent in an Officer’s Certificate delivered to the Master Trustee.
"Consultant" means a professional consulting, accounting, investment banking or commercial banking firm selected by the Obligated Group Agent in accordance with the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Approval of Consultants," as applicable, having the skill, experience and senior living knowledge necessary to render the particular report required and having a favorable reputation for such skill, experience and knowledge, which firm is not a Member of the Obligated Group, does not control any Member of the Obligated Group or any Affiliate thereof and is not controlled by or under common control with any Member of the Obligated Group or an Affiliate thereof.
"Contributions" means the aggregate amount of all contributions, grants, gifts, bequests and devises actually received in cash or marketable securities by any Person in the applicable fiscal year of such Person and any such contributions, grants, gifts, bequests and devises originally received in a form other than cash or marketable securities by any Person which are converted in such fiscal year to cash or marketable securities. Contributions shall include payments received from any Affiliate of an Obligated Group Member.
"Corporation" or "Lessee" means Friendship Village of Dublin, Ohio, Inc., an Ohio nonprofit corporation, and its successors and assigns and any surviving, resulting or transferee corporation.
"Current Value" means (i) with respect to Property, Plant and Equipment: (a) the aggregate fair market value of such Property, Plant and Equipment as reflected in the most recent written report of an appraiser selected by the Obligated Group Agent and, in the case of real property, who is a member of the American Institute of Real Estate Appraisers (MAI), delivered to the Master Trustee (which report shall be dated not more than three years prior to the date as of which Current Value is to be calculated) increased or decreased by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from the date of such report to the date as of which Current Value is to be calculated, minus the fair market value (as reflected in such most recent appraiser’s report) of any Property, Plant and Equipment included in such report but disposed of since the last such report increased or decreased by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from the date of such report to the date as of which Current Value is to be calculated; plus (b) the Book Value
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of any Property, Plant and Equipment acquired since the last such report increased or decreased by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from the date of such acquisition to the date as of which Current Value is to be calculated, minus (c) the Book Value of any such Property, Plant and Equipment acquired since the last such report but disposed of and (ii) with respect to any other Property, the fair market value of such Property, which fair market value shall be evidenced in a manner satisfactory to the Master Trustee, including by a certification of an appraiser selected by the Obligated Group Agent.
"Days Cash on Hand" means, as of the date of calculation, the amount determined by dividing (a) the amount of Cash and Investments on such date by (b) the quotient obtained by dividing Expenses (including interest on Indebtedness but excluding provisions for bad debt, amortization, depreciation or any other non-cash expenses) as shown on the most recent annual audited financial statements of the Obligated Group, by 365.
"Debt Service Reserve Fund" means the fund by that name created under the Bond Indenture.
"Debt Service Reserve Fund Requirement" means, with respect to the Series 2014 Bonds, as of any particular date the Debt Service Reserve Fund is required to be funded pursuant to the Bond Indenture, the least of (a) the Maximum Annual Debt Service Requirement with respect to all Outstanding Series 2014 Bonds, (b) one hundred twenty-five percent (125%) of average annual debt service on all Outstanding Series 2014 Bonds, and (c) an amount equal to ten percent (10%) of the principal amount of Outstanding Series 2014 Bonds at the time of such calculation.
"Defeasance Obligations" means (i) direct general obligations of the United States of America, which shall specifically include obligations of the Resolution Funding Corporation; and (ii) evidences of ownership of proportionate interests in future interest or principal payments on obligations specified in clause (i) of this definition held by a bank or trust company as custodian, under which the owner of the investment is the real party in interest and has the right to proceed directly and individually against the obligor on the underlying obligations described in clause (i) of this definition, and which underlying obligations are not available to satisfy any claim of the custodian or any person claiming through the custodian or to whom the custodian may be obligated.
"DTC" means The Depository Trust Company, a limited purpose trust company organized under the laws of the State of New York, and its successors and assigns.
"DTC Participant" means banks, brokers or dealers who are participants of DTC.
"EMMA" means the Electronic Municipal Market Access system as described in the Securities Exchange Act of 1934, as amended by Release No. 59062, and maintained by the Municipal Securities Rulemaking Board for purposes of Rule 15c2-12, or any similar system that is acceptable to the Securities and Exchange Commission.
"Encumbered" means, with respect to Property, subject to a Lien described in the following subparagraphs of the definition of Permitted Encumbrances: (b) other than a Lien securing Non-Recourse Indebtedness, (d) but including only Capitalized Leases, (l)(ii), (s) and (u)(ii), and all other Liens not described in the definition of Permitted Encumbrances; provided that any amounts on deposit in a construction fund created in connection with the issuance of an Obligation which are held as security for the payment of such Obligation or any Indebtedness incurred to purchase such Obligation or the proceeds of which are advanced or otherwise made available in connection with the issuance of such Obligation, shall not be deemed to be Encumbered if the amounts are to be applied to construct or otherwise acquire Property which is not subject to a Lien.
"Entrance Fee(s)" means fees, other than security deposits, monthly rentals or monthly service charges, paid to a Member by residents of living units for the purpose of obtaining the right to reside in those living units or to obtain a parking space including any refundable resident deposits described in any Residency Agreement with respect to those living units or parking spaces, but shall not include any such amounts held in escrow or otherwise set aside pursuant to the requirements of any such agreement or a reservation agreement prior to the occupancy of the living unit or parking space covered by a Residency Agreement (which amounts shall be included if and when occupancy occurs).
"Escrow Obligations" means, (a) with respect to any Obligation which secures a series of Related Bonds, the obligations permitted to be used to refund or advance refund such series of Related Bonds under the Related Bond Indenture, or (b) in all other cases (i) Government Obligations, (ii) obligations of any agency or instrumentality of the United States Government, (iii) certificates of deposit issued by a bank or trust company
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which are (A) fully insured by the Federal Deposit Insurance Corporation, Federal Savings and Loan Insurance Corporation or similar corporation chartered by the United States or (B) secured by a pledge of any United States Government Obligations having an aggregate market value, exclusive of accrued interest, equal at least to the principal amount of the certificates so secured, which security is held in a custody account by a custodian, (iv) obligations issued by any state of the United States or any political subdivision, public instrumentality or public authority of any state, which obligations are not callable before the date the principal thereof will be required and which obligations are fully secured by and payable solely from Government Obligations, which securities are held pursuant to an agreement in form and substance not objected to by the Master Trustee, or (v) shares or certificates in any short-term investment fund which is maintained by the Master Trustee or a Related Bond Trustee or any of their affiliates.
"Excluded Property" means (a) any assets of "employee pension benefit plans" as defined in the Employee Retirement Income Security Act of 1974, as amended, (b) any moneys and securities held as an entrance fee deposit or security deposit, or in a resident trust fund, for any resident of any Facility of a Member prior to such resident’s occupancy of any Facility, and (c) the real estate described as Excluded Property in the Master Indenture, as amended as provided in the Master Indenture from time to time, and all improvements, fixtures, tangible personal property and equipment located thereon and used in connection therewith.
"Existing Facilities" means the Existing Real Property and all Hospital Facilities acquired, constructed and installed on the Existing Real Property including, without limitation, the Project.
"Existing Real Property" means the real estate described in Exhibit A attached to the Bond Indenture, as of the date of the original execution of the Bond Indenture.
"Expenses" means, for any period, the aggregate of all expenses calculated under generally accepted accounting principles, including without limitation any taxes, incurred by the Person or group of Persons involved during such period, minus (a) interest on Funded Indebtedness (taking into account any Interest Rate Agreement as described under the caption "Summary of Certain Provisions of the Master Indenture - Calculation of Debt Service and Debt Service Coverage"), (b) depreciation and amortization, (c) extraordinary expenses, losses on the sale, disposal or abandonment of assets other than in the ordinary course of business and losses on the extinguishment of debt or termination of pension plans, (d) any expenses resulting from a forgiveness of or the establishment of reserves against Indebtedness of an Affiliate which does not constitute an extraordinary expense, (e) losses resulting from any reappraisal, revaluation or write-down of assets other than bad debts, (f) any losses from the sale or other disposition of fixed or capital assets, (g) any losses resulting from changes in the valuation of investment securities and unrealized changes in the value of derivative instruments or resulting from the temporary impairment of investment securities, (h) any other non-cash expenses, and (i) any development, management, marketing, operating or other subordinated fees that have been deferred from the year in which they were originally due as a result of subordination. If such calculation is being made with respect to the Obligated Group, any such expenses attributable to transactions between any Member and any other Member shall be excluded. Generally, any transfers of cash made pursuant to the provision of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Sale, Lease or Other Disposition of Property" are not included in the definition of "Expenses."
"Extendable Indebtedness" means Indebtedness which is repayable or subject to purchase at the option of the holder thereof prior to its stated maturity, but only to the extent of money available for the repayment or purchase therefor and not more frequently than once every year.
"Facilities" means all land, leasehold interests and buildings and all fixtures and equipment (as defined in the Uniform Commercial Code or equivalent statute in effect in the state where such fixtures or equipment are located) of a Person. Facilities shall not include the land, leasehold interests, buildings, fixtures or equipment constituting Excluded Property.
"Fiscal Year" means any 12-month period beginning on July 1 and ending on June 30 of a calendar year or such other consecutive 12-month period selected by the Obligated Group Agent as the fiscal year for the Members.
"Fitch" means Fitch Ratings Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, and if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Fitch" shall be deemed to refer to any other nationally recognized securities rating agency designated, for purposes of the Master Indenture, by the Obligated Group Agent.
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"Funded Indebtedness" means, with respect to any Person, (a) all Indebtedness of such Person for money borrowed, credit extended, incurred or assumed which is not Short-Term; (b) all Short-Term Indebtedness incurred by the Person which is of the type described in subparagraph (d) of the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Permitted Additional Indebtedness"; (c) the Person’s Guaranties of Indebtedness which are not Short-Term; and (d) Capitalized Rentals under Capitalized Leases entered into by the Person; provided, however, that Indebtedness that could be described by more than one of the foregoing categories shall not in any case be considered more than once for the purpose of any calculation made pursuant to the Master Indenture.
"Funded Interest" means amounts irrevocably deposited in an escrow or other account to pay interest on Funded Indebtedness or Related Bonds and interest earned on amounts irrevocably deposited in an escrow or other account, to the extent such amounts so deposited are required to be applied to pay interest on Funded Indebtedness or Related Bonds.
"Governing Body" means, with respect to a Member the board of directors, the board of trustees or similar group in which the right to exercise the powers of corporate directors or trustees is vested.
"Government Obligations" means, with respect to the Bond Indenture, securities which consist of (a) United States Government Obligations, or (b) evidences of a direct ownership in future interest or principal payments on United States Government Obligations, which obligations are held in a custody account by a custodian pursuant to the terms of a custody agreement.
"Gross Revenues" means all receipts, revenues, rentals, income, insurance proceeds (including, without limitation, all Medicaid, Medicare and other third-party payments), condemnation awards, Entrance Fees and other moneys received by or on behalf of any Obligated Group Member, including (without limitation) revenues derived from (a) the ownership, operation or leasing of any portion of the Facilities (including, without limitation, fees payable by or on behalf of residents of the Facilities) and all rights to receive the same (other than the right to receive Medicaid and Medicare payments), whether in the form of accounts, general intangibles or other rights, and the proceeds of such accounts, general intangibles and other rights, whether now existing or hereafter coming into existence or whether now owned or held or hereafter acquired, and (b) gifts, grants, bequests, donations and contributions heretofore or hereafter made that are legally available to meet any of the obligations of the Obligated Group Member incurred in the financing, operation, maintenance or repair of any portion of the Facilities; provided, however, that there shall be excluded from Gross Revenues (i) any amounts received by an Obligated Group Member as a billing agent for another entity, except for fees received for serving as billing agent, (ii) gifts, grants, bequests, donations and contributions to an Obligated Group Member heretofore or hereafter made, and the income and gains derived therefrom, which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use for payments required under the Master Indenture, (iii) any moneys received by any Obligated Group Member from prospective residents or commercial tenants in order to pay for customized improvements to independent living units or other areas of the Facilities to be occupied or leased to such residents or tenants, (iv) payments or deposits under a Residency Agreement that by its terms or applicable law are required to be held in escrow or trust for the benefit of a resident until the conditions for the release of such payment or deposit have been satisfied, and (v) Initial Entrance Fees.
"Guaranty" means all obligations of a Person guaranteeing, or in effect guaranteeing, any Indebtedness, dividend or other obligation of any Primary Obligor in any manner, whether directly or indirectly, including but not limited to obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such Indebtedness or obligation or any Property constituting security therefor; (b) to advance or supply funds: (i) for the purchase or payment of such Indebtedness or obligation, or (ii) to maintain working capital or other balance sheet condition; (c) to purchase securities or other Property or services primarily for the purpose of assuring the owner of such Indebtedness or obligation of the ability of the Primary Obligor to make payment of the Indebtedness or obligation; or (d) otherwise to assure the owner of such Indebtedness or obligation against loss in respect thereof.
"Historical Debt Service Coverage Ratio" means, for any period of time, the ratio consisting of a numerator equal to the amount determined by dividing Income Available for Debt Service for that period by the Debt Service Requirements for such period and a denominator of one; provided, however, that in calculating the Debt Service Requirements for such period, the principal amount of any Indebtedness included in such calculation which is paid during such period shall be excluded to the extent such principal amount is paid from the proceeds of other Indebtedness incurred in accordance with the provisions of the Master Indenture and to the extent an Interest Rate
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Agreement has been entered into in connection with any particular indebtedness, the actual debt service paid after the effect of payments made to or received from the provider of the Interest Rate Agreement.
"Historical Pro Forma Debt Service Coverage Ratio" means, for any period of time, the ratio consisting of a numerator equal to the amount determined by dividing Income Available for Debt Service for that period by the Maximum Annual Debt Service Requirement for the Funded Indebtedness then Outstanding (other than any Funded Indebtedness being refunded with the Funded Indebtedness then proposed to be issued) and the Funded Indebtedness then proposed to be issued and a denominator of one.
"Historical Maximum Annual Debt Service Coverage Ratio" means, for any period of time, the ratio consisting of a numerator equal to the amount determined by dividing Income Available for Debt Service for that period by the Historical Maximum Annual Debt Service Requirements on the Indebtedness of the Person or Persons involved during any completed period and a denominator of one; provided, however, that in calculating the Debt Service Requirements for any completed period, the principal amount of any Indebtedness included in such calculation which is paid during such period shall be excluded to the extent such principal amount is paid from the proceeds of other Indebtedness incurred in accordance with the provisions of the Master Indenture, and to the extent an Interest Rate Agreement has been entered into in connection with any particular indebtedness, the actual debt service paid after the effect of payments made to or received from the provider of the Interest Rate Agreement.
"Historical Maximum Annual Debt Service Requirements" means the largest total Debt Service Requirements for the Fiscal Year with respect to which an Historical Maximum Annual Debt Service Coverage Ratio is being calculated or any subsequent Fiscal Year on the Indebtedness of the Person or Persons involved which was simultaneously Outstanding during the Fiscal Year with respect to which an Historical Maximum Annual Debt Service Coverage Ratio is being calculated.
"Home Care" means Friendship Village of Dublin Home Care LLC, a limited liability company formed under the laws of the State of Ohio, and its successors and assigns.
"Income Available for Debt Service" means for any period, the excess of Revenues over Expenses of the Person or group of Persons involved.
"Indebtedness" means, for any Person, (a) all Guaranties by such Person, (b) all liabilities (exclusive of reserves such as those established for deferred taxes or litigation) recorded or required to be recorded as such on the audited financial statements of such Person in accordance with generally accepted accounting principles, and (c) all obligations for the payment of money incurred or assumed by such Person (i) due and payable in all events or (ii) if incurred or assumed primarily to assure the repayment of money borrowed or credit extended, due and payable upon the occurrence of a condition precedent or upon the performance of work, possession of Property as lessee, rendering of services by others or otherwise; provided that Indebtedness shall not include Indebtedness of one Member to another Member, any Guaranty by any Member of Indebtedness of any other Member, the joint and several liability of any Member on Indebtedness issued by another Member, Interest Rate Agreements or any obligation to repay moneys deposited by residents or others with a Member as security for or as prepayment of the cost of resident care or any rights of residents of life care, elderly housing or similar facilities to Entrance Fees (whether amortized into income or not), endowment or similar funds deposited by or on behalf of such residents including but not limited to any deferred obligations for the refund or repayment of Entrance Fees, any rent, development, marketing, operating or other fees that have been deferred from the year in which they were originally due as a result of deferral or subordination.
"Independent Architect" means an architect, engineer or firm of architects or engineers selected by the Corporation and licensed by, or permitted to practice in, the state where the construction involved is located, which architect, engineer or firm of architects or engineers shall have no interest, direct or indirect, in any member of the Obligated Group or any Affiliate thereof and, in the case of an individual, shall not be a partner, member, director, officer, controlling shareholder or employee of any member of the Obligated Group or any Affiliate thereof and, in the case of a firm, shall not have a partner, member, director, officer or employee who is a partner, member, director, officer, controlling shareholder or employee of any member of the Obligated Group or any Affiliate thereof; it being understood that an arm’s-length contract with a member of the Obligated Group for the performance of architectural or engineering services shall not in and of itself be regarded as creating an interest in or an employee relationship with such entity and that the term Independent Architect may include an architect or engineer or a firm of architects or engineers who otherwise meet the requirements of this definition and who also are under contract to construct the facility which they have designed.
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"Independent Counsel" means an attorney duly admitted to practice law before the highest court of any state and, without limitation, may include independent legal counsel, with respect to the Master Indenture, for any Related Issuer, any Member, the Master Trustee or any Related Bond Trustee, and, with respect to the Bond Indenture, the Issuer, the Corporation, any other Member of the Obligated Group, the Bond Trustee or the Master Trustee.
"Initial Entrance Fees" means Entrance Fees received upon the initial occupancy of any independent living unit not previously occupied.
"Initial Members" means the Corporation, Home Care and Birchton.
"Initial Obligations" means, collectively, the Series 2004A LOC Obligation, the Series 2004A Obligation and the Series 2014 Obligation.
"Initial Purchaser" means B.C. Ziegler and Company doing business as Ziegler, as initial purchaser of the Series 2014 Bonds.
"Insurance Consultant" means a person or firm who in the case of an individual is not an employee or officer of any Member or any Related Issuer and which, in the case of a firm, does not control any Member of the Obligated Group or any Affiliate thereof and is not controlled by or under common control with any Member of the Obligated Group or an Affiliate thereof, appointed by the Obligated Group Agent, qualified to survey risks and to recommend insurance coverage for nursing homes or health care facilities and services of the type involved, and having a favorable reputation for skill and experience in such surveys and such recommendations, and which may include a broker or agent with whom any Member transacts business.
"Interest Payment Date" means each May 15 and November 15, commencing May 15, 2015.
"Interest Rate Agreement" means an interest rate exchange, hedge or similar agreement, expressly identified in an Officer’s Certificate of the Obligated Group Agent delivered to the Master Trustee as being entered into in order to hedge the interest payable on all or a portion of any Indebtedness, which agreement may include, without limitation, an interest rate swap, a forward or futures contract or an option (e.g. a call, put, cap, floor or collar) and which agreement does not constitute an obligation to repay money borrowed, credit extended or the equivalent thereof. An Interest Rate Agreement shall not constitute Indebtedness under the Master Indenture.
"Issuer" means the County of Franklin, Ohio, acting by and through the County Hospital Commission of Franklin County, a county an political subdivision of the State of Ohio, and its successors and assigns.
"Land" means the real Property owned or leased by the Obligated Group upon which the primary operations of the Members are conducted as described in the Master Indenture, as amended as provided therein from time to time, together with all buildings, improvements and fixtures located thereon, but excluding therefrom the Excluded Property.
"Lien" means any mortgage, pledge or lease of, security interest in or lien, charge, restriction or encumbrance on any Property of the Person involved in favor of, or which secures any obligation to, any Person other than any Member, and any Capitalized Lease under which any Member is lessee and the lessor is not another Member.
"Liquidity Requirement" means no less than 120 Days Cash on Hand.
"Long-Term Indebtedness" means Indebtedness (which also may constitute Balloon Indebtedness or Put Indebtedness) having an original stated maturity or term greater than one year or renewable at the option of the debtor for a period greater than one year from the date of original issuance.
"Master Indenture" means the Master Trust Indenture dated as of December 1, 2014 among the Corporation, Home Care, Birchton and the Master Trustee, as it may from time to time be amended or supplemented in accordance with the terms thereof.
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"Master Trustee" means U.S. Bank National Association, its successors and assigns, or any successor trustee under the Master Indenture.
"Maximum Annual Debt Service Requirement" means the largest total Debt Service Requirements for the current or any succeeding Fiscal Year.
"Member" or "Member of the Obligated Group" means any Person who is listed in the Master Indenture after designation as a Member of the Obligated Group pursuant to the terms of the Master Indenture.
"Moody’s" means Moody’s Investors Service, Inc., a corporation organized and existing under the laws of the State of Delaware, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Moody’s" shall be deemed to refer to any other nationally recognized securities rating agency designated by, for purposes of the Master Indenture, the Obligated Group Agent or, for purposes of the Series 2014 Bonds, the Obligated Group Agent by notice to the Bond Trustee, the Issuer and the Corporation.
"Mortgage" means the Open-End Mortgage, Assignment of Leases and Rents, Fixture Filing and Security Agreement between the Corporation, as mortgagor, and the Master Trustee, as mortgagee, dated as of December 1, 2014, as the same may be supplemented and amended from time to time.
"Mortgaged Property" means the real property and personal property of the Corporation which is subject to the Lien and security interest of the Mortgage.
"Net Proceeds" means, when used with respect to any insurance or condemnation award or sale consummated under threat of condemnation, the gross proceeds from the insurance or condemnation award or sale with respect to which that term is used less all expenses (including attorney’s fees, adjuster’s fees and any expenses of the Obligated Group or the Master Trustee) incurred in the collection of such gross proceeds.
"Net Rentals" means all fixed rents (including as such all payments which the lessee is obligated to make to the lessor on termination of the lease or surrender of the Property other than upon termination of the lease for a default thereunder) payable under a lease or sublease of real or personal Property excluding any amounts required to be paid by the lessee (whether or not designated as rents or additional rents) on account of maintenance, repairs, insurance, taxes and similar charges. Net Rentals for any future period under any so-called "percentage lease" shall be computed on the basis of the amount reasonably estimated to be payable thereunder for such period, but in any event not less than the amount paid or payable thereunder during the immediately preceding period of the same duration as such future period; provided that the amount estimated to be payable under any such percentage lease shall in all cases recognize any change in the applicable percentage called for by the terms of such lease.
"Non-Recourse Indebtedness" means any Indebtedness the liability for which is effectively limited to Property, Plant and Equipment (other than the Land) and the income therefrom, with no recourse, directly or indirectly, to any other Property of any Member.
"Obligated Group" means the Corporation, Home Care, Birchton and any other Person which has fulfilled the requirements for entry into the Obligated Group set forth in the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Entrance Into the Obligated Group" and which has not ceased such status pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Cessation of Status as a Member of the Obligated Group."
"Obligated Group Agent" means the Corporation or such other Member as may be designated from time to time pursuant to written notice to the Master Trustee, and the Issuer (in the case of the Bond Indenture) executed by the President or Chairman of the Governing Body of the Corporation or other authorized officer or, if the Corporation is no longer a Member of the Obligated Group, of each Member of the Obligated Group.
"Obligation Holder," "holder" or "owner of the Obligation" means the registered owner of any fully registered or book entry Obligation unless alternative provision is made in the Supplemental Master Indenture pursuant to which such Obligation is issued for establishing ownership of such Obligation in which case such alternative provision shall control.
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"Obligations" means any evidence of Indebtedness or evidence of any repayment obligation under any Interest Rate Agreement authorized to be issued by a Member pursuant to the Master Indenture which has been authenticated by the Master Trustee pursuant to the Master Indenture and any Obligation or Obligations issued in exchange therefor.
"Occupied" means (i) with respect to any independent living unit, any unit for which a Residency Agreement has been executed, and the related Entrance Fee has been paid or a promissory note for such Entrance Fee has been executed and the occupant of such independent living unit continues to reside therein or (ii) with respect to any other type of unit/bed, physical possession of such unit/bed by a resident (other than a resident temporarily transferred from another unit/bed within the community).
"Officer’s Certificate" means a certificate signed, in the case of a certificate delivered by a Member of the Obligated Group, by the President, Vice President or any other officer or agent authorized to sign by resolution of the Governing Body of any Member of the Obligated Group or in the case of a certificate delivered by any other organization, by the President, Vice President or any other officer or agent authorized to sign by resolution of the Governing Body of such corporation or, in the case of a certificate delivered by any other Person, the chief executive or chief financial officer of such other Person, in either case whose authority to execute such certificate shall be evidenced to the satisfaction of the Master Trustee.
"Official Statement" means this Official Statement prepared in connection with the Series 2014 Bonds.
"Opinion of Bond Counsel" means a written opinion of nationally recognized municipal bond counsel, which opinion, including the scope, form, substance and other aspects thereof, is not objected to by the Master Trustee, and which opinion may be based upon a ruling or rulings of the Internal Revenue Service.
"Outstanding" means, with respect to the Master Indenture, in the case of Indebtedness of a Person other than Related Bonds or Obligations, all such Indebtedness of such Person which has been issued except any such portion thereof canceled after purchase or surrendered for cancellation or because of payment at or redemption prior to maturity, any such Indebtedness in lieu of which other Indebtedness has been duly incurred and any such Indebtedness which is no longer deemed outstanding under its terms and with respect to which such Person is no longer liable under the terms of such Indebtedness.
"Outstanding" or "Series 2014 Bonds Outstanding" means, with respect to the Bond Indenture, all Series 2014 Bonds which have been duly authenticated and delivered by the Bond Trustee under the Bond Indenture, except:
(a) Series 2014 Bonds canceled after purchase thereof in the open market or because of payment at or redemption prior to maturity;
(b) Series 2014 Bonds paid or deemed to be paid under the Bond Indenture;
(c) Series 2014 Bonds in lieu of which others have been authenticated under the Bond Indenture; and
(d) Series 2014 Bonds owned by any Member of the Obligated Group.
"Outstanding Obligations" or "Obligations Outstanding" means all Obligations which have been duly authenticated and delivered by the Master Trustee under the Master Indenture, except:
(a) Obligations canceled after purchase or because of payment at or prepayment or redemption prior to maturity;
(b) (i) Obligations for the payment or redemption of which cash or Escrow Obligations shall have been theretofore deposited with the Master Trustee (whether upon or prior to the maturity or redemption date of any such Obligations); provided that if such Obligations are to be prepaid or redeemed prior to the maturity thereof, notice of such prepayment or redemption shall have been given or irrevocable arrangements satisfactory to the Master Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Master Trustee shall have been filed with the Master Trustee and (ii) Obligations
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securing Related Bonds for the payment or redemption of which cash or Escrow Obligations shall have been theretofore deposited with the Related Bond Trustee (whether upon or prior to the maturity or redemption date of any such Related Bonds); provided that if such Obligations are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or arrangements satisfactory to the Related Bond Trustee shall have been made therefor, or waiver of notice satisfactory in form to the Related Bond Trustee shall have been filed with the Related Bond Trustee;
(c) Obligations in lieu of which others have been authenticated under the Master Indenture; and
(d) Obligations held by a Member.
Notwithstanding the foregoing, any Obligation securing Related Bonds shall be deemed Outstanding if such Related Bonds are Outstanding.
"Outstanding Related Bonds" means all Related Bonds which have been duly authenticated and delivered by the Related Bond Trustee under the Related Bond Indenture and are deemed outstanding under the terms of such Related Bond Indenture or, if such Related Bond Indenture does not specify when Related Bonds are deemed outstanding thereunder, all such Related Bonds which have been so authenticated and delivered, except:
(a) Related Bonds canceled after purchase in the open market or because of payment at or redemption prior to maturity;
(b) Related Bonds for the payment or redemption of which cash or Escrow Obligations of the type described in clause (b)(i) of the definition thereof shall have been theretofore deposited with the Related Bond Trustee (whether upon or prior to the maturity or redemption date of any such Bonds) in accordance with the Related Bond Indenture; provided that if such Bonds are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given or arrangements satisfactory to the Related Bond Trustee shall have been made therefor, or waiver of such notice satisfactory in form to the Related Bond Trustee shall have been filed with the Related Bond Trustee;
(c) Related Bonds in lieu of which others have been authenticated under the Related Bond Indenture; and
(d) For the purposes of all covenants, approvals, waivers and notices required to be obtained or given under the Related Bond Indenture, Related Bonds held or owned by a Member.
"Paying Agent" means the bank or banks, if any, designated pursuant to a Related Bond Indenture to receive and disburse the principal of, premium, if any and interest on any Related Bonds or designated pursuant to the Master Indenture and named in an Obligation to receive and disburse the principal of, premium, if any, and interest on such Obligation.
"Permitted Encumbrances" means the Master Indenture, any Related Loan Document, any Related Bond Indenture and, as of any particular time:
(a) Liens arising by reason of good faith deposits with a Member in connection with tenders, leases of real estate, bids or contracts (other than contracts for the payment of money), deposits by any Member to secure public or statutory obligations, or to secure, or in lieu of, surety, stay or appeal bonds, and deposits as security for the payment of taxes or assessments or other similar charges; any Lien arising by reason of deposits with, or the giving of any form of security to, any governmental agency or any body created or approved by law or governmental regulation for any purpose at any time as required by law or governmental regulation as a condition to the transaction of any business or the exercise of any privilege or license, or to enable any Member to maintain self-insurance or to participate in any funds established to cover any insurance risks or in connection with workers’ compensation, unemployment insurance, pensions or profit sharing plans or other social security plans or programs, or to share in the privileges or benefits required for corporations participating in such arrangements;
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(b) any Lien on the Property of any Member permitted under the provisions of the Master Indenture summarized under the heading "Summary of Certain Provisions of the Master Indenture – Liens on Property;"
(c) the Mortgage and any other security agreement or document securing the Master Trustee in connection with the issuance of the Series 2014 Bonds, and any other Lien on Property if such Lien equally and ratably secures all of the Obligations and only the Obligations;
(d) Residency Agreements and leases which relate to Property of the Obligated Group which is of a type that is customarily the subject of such leases, such as office space for physicians and educational institutions, food service facilities, gift shops, commercial, beauty shop, banking, parking for residents, other similar specialty services, pharmacy and similar departments or employee rental apartments; sale/saleback or lease/leaseback or similar arrangements in connection with the issuance of Related Bonds; and any leases, licenses or similar rights to use Property whereunder a Member is lessee, licensee or the equivalent thereof upon fair and reasonable terms no less favorable to the lessee or licensee than would obtain in a comparable arm’s-length transaction;
(e) Liens for taxes and special assessments which are not then delinquent, or if then delinquent are being contested in accordance with the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Covenants as to Corporate Existence, Maintenance of Properties, and Similar Matters; Right of Contest;"
(f) utility, access and other easements and rights-of-way, restrictions, encumbrances and exceptions which do not materially interfere with or materially impair the operation of the Property affected thereby (or, if such Property is not being then operated, the operation for which it was designed or last modified);
(g) any mechanic’s, laborer’s, materialman’s, supplier’s or vendor’s Lien or right in respect thereof if payment is not yet due under the contract in question or has been due for less than 60 days, or if such Lien is being contested in accordance with the provisions of the Master Indenture;
(h) such Liens, defects, irregularities of title and encroachments on adjoining property as normally exist with respect to property similar in character to the Property involved and which do not materially adversely affect the value of, or materially impair, the Property affected thereby for the purpose for which it was acquired or is held by the owner thereof, including without limitation statutory liens granted to banks or other financial institutions, which liens have not been specifically granted to secure Indebtedness and which do not apply to Property which has been deposited as part of a plan to secure Indebtedness;
(i) zoning laws and similar restrictions which are not violated by the Property affected thereby;
(j) statutory rights under Section 291, Title 42 of the United States Code, as a result of what are commonly known as Hill-Burton grants, and similar rights under other federal statutes or statutes of the state in which the Property involved is located;
(k) all right, title and interest of the state where the Property involved is located, municipalities and the public in and to tunnels, bridges and passageways over, under or upon a public way;
(l) Liens on or in Property given, granted, bequeathed or devised by the owner thereof existing at the time of such gift, grant, bequest or devise, provided that (i) such Liens consist solely of restrictions on the use thereof or the income therefrom, or (ii) such Liens secure Indebtedness which is not assumed by any Member and such Liens attach solely to the Property (including the income therefrom) which is the subject of such gift, grant, bequest or devise;
(m) Liens of or resulting from any judgment or award, the time for the appeal or petition for rehearing of which shall not have expired, or in respect of which any Member shall at any time in good faith be prosecuting an appeal or proceeding for a review and in respect of which a stay of execution pending such appeal or proceeding for review shall be in existence;
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(n) Liens on moneys deposited by residents or others with a Member as security for or as prepayment of the cost of resident or patient care or any rights of residents of life care, elderly housing or similar facilities to endowment, prepayment or similar funds deposited by or on behalf of such residents;
(o) Liens on Excluded Property;
(p) Liens on Property due to rights of third party payors for recoupment of excess reimbursement paid;
(q) any security interest in the Rebate Fund, any depreciation reserve, debt service or interest reserve, debt service, construction fund or any similar fund established pursuant to the terms of any Supplemental Master Indenture, Related Bond Indenture or Related Loan Document in favor of the Master Trustee, a Related Bond Trustee, a Related Issuer or the holder of the Indebtedness issued pursuant to such Supplemental Master Indenture, Related Bond Indenture or Related Loan Document or the holder of any related Commitment Indebtedness;
(r) any Lien on any Related Bond or any evidence of Indebtedness of any Member acquired by or on behalf of any Member which secures Commitment Indebtedness and only Commitment Indebtedness;
(s) any Lien on Property acquired by a Member which Lien secures Indebtedness issued, incurred or assumed by any Member, in connection with and to effect such acquisition or existing Indebtedness which will remain Outstanding after such acquisition which Lien encumbers Property other than Land, if in any such case the aggregate principal amount of such Indebtedness does not exceed the fair market value of the Property subject to such Lien as determined in good faith by the Governing Body of the Member;
(t) Liens on accounts receivable arising as a result of the sale of such accounts receivable with or without recourse, provided that the principal amount of Indebtedness secured by any such Lien does not exceed the face amount of such accounts receivable sold;
(u) such Liens, covenants, conditions and restrictions, if any, which do not secure Indebtedness and which are other than those of the type referred to above, as are set forth in the Master Indenture, and which (i) in the case of Property owned by the Obligated Group on the date of execution of the Master Indenture, do not and will not, so far as can reasonably be foreseen, materially adversely affect the value of the Property currently affected thereby or materially impair the same, and (ii) in the case of any other Property, do not materially impair or materially interfere with the operation or usefulness thereof for the purpose for which such Property was acquired or is held by a Member;
(v) any Lien to which the Property of a Member is subject at the time it becomes a Member, provided that at the time of becoming a Member, (i) the principal amount of the debt the Lien secures is not more than 80% of the Current Value of the Property subject to the Lien, (ii) the Obligated Group Agent shall deliver to the Master Trustee an Officer’s Certificate that, after giving effect thereto, the aggregate amount of the Indebtedness secured by such Lien and by all other Liens permitted by this paragraph (v), does not exceed 30% of the Book Value or, at the option of the Obligated Group Agent, the Current Value of the Property, Plant and Equipment of the Obligated Group, (iii) the requirements summarized in subparagraph (c) under the caption "Summary of Certain Provisions of the Master Indenture – Entrance into the Obligated Group" have been met, (iv) no Lien so described may be modified to apply to any Property of any Member not subject to such Lien on the date of such Member’s joining the Obligated Group, (v) no Additional Indebtedness may be thereafter incurred which is secured by such Lien and (vi) no Lien so described may be extended or replaced by another Lien;
(w) Liens on funds or securities posted in a collateral account held by a counterparty to an Interest Rate Agreement, or by a third party custodian therefore;
(x) Liens securing Indebtedness incurred for the purpose of financing all or any part of the purchase price or the cost of constructing or improving the property subject to such Liens; provided that such Liens shall not apply to any Property theretofore owned by an Obligated Group Member other than any theretofore unimproved real property on which the Property so constructed or improved is located;
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(y) security interests in the accounts (and proceeds thereof), as defined in Article 9 of the Ohio Uniform Commercial Code as now or hereafter in effect, of any Member which may be prior to, on a parity with or subordinate to the security interest in those accounts and proceeds created by the Master Indenture, securing Short-Term Indebtedness provided that at the time of the creation of any such security interest the Current Value of such accounts, together with the Current Value of all other Property subject to Liens classified as Permitted Encumbrances under subparagraph (2) of the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Liens on Property," shall not exceed 15% of the Revenues as reflected in the Financial Statements of the Obligated Group; and
(z) the items set forth on Schedule B to the title insurance policy delivered in connection with the issuance of the Series 2014 Bonds and attached as Exhibit G to the Master Indenture.
"Permitted Investments" means and includes any of the following:
(a) Government Obligations;
(b) debt obligations which are (i) at the time of purchase, issued by any state or political subdivision thereof or any agency or instrumentality of such state or political subdivision, and (ii) at the time of purchase, rated in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency;
(c) any bond, debenture, note, participation certificate or other similar obligation issued by a government sponsored agency (such as the Federal National Mortgage Association, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation, the Federal Farm Credit Bank or the Student Loan Marketing Association) which is either (i) rated in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency, or (ii) backed by the full faith and credit of the United States of America;
(d) U.S. denominated deposit account, certificates of deposit and banker’s acceptances of any bank, trust company, or savings and loan association, including the Master Trustee or its affiliates, which have a rating on their short-term certificates of deposit on the date of purchase in one of the two highest short-term rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency, and which mature not more than 360 days after the date of purchase;
(e) commercial paper which is rated at the time of purchase in one of the two highest short-term rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency, and which matures not more than 270 days after the date of purchase;
(f) bonds, notes, debentures or other evidences of indebtedness issued or guaranteed by a corporation which are, at the time of purchase, rated by any Rating Agency in any of the three highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise);
(g) asset-backed securities, commercial mortgage-backed securities, or mortgage-backed securities which are, at the time of purchase, rated by any Rating Agency in any of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise);
(h) investment agreements with banks that at the time such agreement is executed are rated in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency or investment agreements with non-bank financial institutions, provided that (1) all of the unsecured, direct long-term debt of either the non-bank financial institution or the related guarantor of such non-bank financial institution is rated by any Rating Agency at the time such agreement is executed in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) for obligations of that nature; or (2) if such non-bank financial institution and any related guarantor have no Outstanding
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long-term debt that is rated, all of the short-term debt of either the non-bank financial institution or the related guarantor of such non-bank financial institution is rated by any Rating Agency in one of the two highest rating categories (without regard to any refinement or gradation of the rating category by numerical modifier or otherwise) assigned to short term indebtedness by any Rating Agency. If such non-bank financial institution and any guarantor do not have any short-term or long-term debt, but do have a rating in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise), then investment agreements with such non-bank financial institutions will be permitted;
(i) repurchase agreements with respect to and secured by Government Obligations or by obligations described in clause (b) and (c) above, which agreements may be entered into with a bank (including without limitation the Related Bond Trustee or the Master Trustee or any of their affiliates), a trust company, financial services firm or a broker dealer which is a member of the Securities Investors Protection Corporation, provided that (i) the Master Trustee or a custodial agent of the Master Trustee has possession of the collateral and that the collateral is, to the knowledge of the Master Trustee, free and clear of third-party claims, (ii) a master repurchase agreement or specific written repurchase agreement governs the transaction, (iii) the collateral securities are valued no less frequently than monthly, and (iv) the fair market value of the collateral securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 103%, and (v) such obligations must be held in the custody of the Master Trustee or Master Trustee’s agent;
(j) investments in a money market fund, which may be funds of the Related Bond Trustee or the Master Trustee or an affiliate thereof, rated (at the time of purchase) in the highest rating category for this type of investment by any Rating Agency; and
(k) shares in any investment company, money market mutual fund, fixed income mutual fund, exchange traded fund or other collective investment fund registered under the federal Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and the majority of whose investments consist solely of Permitted Investments as defined in paragraphs (a) through (j) above, including money market mutual funds from which the Master Trustee, Related Bond Trustee or its affiliates derive a fee for investment advisory or other services to the fund.
The Related Bond Trustee and the Master Trustee shall be entitled to assume that any investment which at the time of purchase is a Permitted Investment remains a Permitted Investment thereafter, absent receipt of written notice to the contrary.
For the purposes of this definition, obligations issued or held in the name of the Related Bond Trustee or the Master Trustee (or in the name of the Related Issuer and payable to the Related Bond Trustee or the Master Trustee) in book-entry form on the books of the Department of Treasury of the United States shall be deemed to be deposited with the Related Bond Trustee or the Master Trustee, as applicable.
"Person" means any natural person, firm, joint venture, association, partnership, business trust, corporation, limited liability company, public body, agency or political subdivision thereof or any other similar entity.
"Primary Obligor" means the Person who is primarily obligated on an obligation which is guaranteed by another person.
"Prior Bonds" means the Adjustable Rate Demand Health Care Facilities Revenue Bonds, Series 2004B (Friendship Village of Dublin, Ohio, Inc. Project) of the Issuer in the original principal amount of $19,820,000.
"Project" means acquiring, constructing, installing and equipping "hospital facilities," as defined in the Act including, without limitation, the acquisition, construction, installation and equipping of certain independent living villas and routine capital expenditures for Fiscal Years 2014, 2015 and 2016 located at 6000 Riverside Drive, Dublin, Ohio 43017, owned and operated by the Corporation.
"Projected Debt Service Coverage Ratio" means, for any future period, the ratio consisting of a numerator equal to the amount determined by dividing the projected Income Available for Debt Service for that period by the Maximum Annual Debt Service Requirement for the Funded Indebtedness expected to be Outstanding during such period and a denominator of one.
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"Projected Rate" means the projected yield at par of an obligation as set forth in the report of a Consultant. Such report shall state that in determining the Projected Rate such Consultant reviewed the yield evaluations at par of no fewer than three obligations selected by such Consultant, the interest on which is entitled to the exemption from federal income tax afforded by Section 103(a) of the Code or any successor thereto (or, if it is not expected that it will be reasonably possible to issue such tax-exempt obligations, then obligations the interest on which is subject to federal income taxation) which obligations such Consultant states in its report are reasonable comparators for utilizing in developing such Projected Rate and which obligations: (i) were Outstanding on a date selected by the Consultant which date so selected occurred during the 90-day period preceding the date of the calculation utilizing the Projected Rate in question, (ii) to the extent practicable, are obligations of Persons engaged in operations similar to those of the Obligated Group and having a credit rating similar to that of the Obligated Group, (iii) are not entitled to the benefits of any credit enhancement including without limitation any letter or line of credit or insurance policy, and (iv) to the extent practicable, have a remaining term and amortization schedule substantially the same as the obligation with respect to which such Projected Rate is being developed.
"Project Fund" means the County of Franklin, Ohio (Friendship Village of Dublin, Ohio Inc.) Series 2014 Project Fund, a special fund created and so designated by the provisions of the Bond Indenture.
"Property" means any and all rights, titles and interests in and to any and all property, whether real or personal, tangible (including cash) or intangible, wherever situated and whether now owned or hereafter acquired, other than Excluded Property.
"Property, Plant and Equipment" means all Property of each Member which is classified as property, plant and equipment under generally accepted accounting principles.
"Purchase Contract" means the Bond Purchase Agreement dated the date of its execution and delivery, among the Initial Purchaser, the Corporation, on behalf of itself, Home Care and Birchton, and the Issuer providing for the sale of the Series 2014 Bonds.
"Put Date" means (a) any date on which an owner of Put Indebtedness may elect to have such Put Indebtedness paid, purchased or redeemed by or on behalf of the underlying obligor prior to its stated maturity date or (b) any date on which Put Indebtedness is required to be paid, purchased or redeemed from the owner by or on behalf of the underlying obligor (other than at the option of the owner) prior to its stated maturity date, other than pursuant to any mandatory sinking fund or other similar fund or other than by reason of acceleration upon the occurrence of an event of default.
"Put Indebtedness" means Indebtedness which is (a) payable or required to be purchased or redeemed by or on behalf of the underlying obligor, at the option of the owner thereof, prior to its stated maturity date or (b) payable or required to be purchased or redeemed from the owner by or on behalf of the underlying obligor (other than at the option of the owner) prior to its stated maturity date, other than pursuant to any mandatory sinking fund or other similar fund, other than by reason of an event of taxability with respect to any Related Bond or other than by reason of acceleration upon the occurrence of an event of default.
"Qualified Investments" means, if and to the extent the same are at the time legal for investment of funds held under the Bond Indenture, dollar denominated investments in any of the following:
(a) Government Obligations;
(b) debt obligations which are (i) issued by any state or political subdivision thereof or any agency or instrumentality of such state or political subdivision, and (ii) at the time of purchase, rated in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency;
(c) any bond, debenture, note, participation certificate or other similar obligation issued by a government sponsored agency (such as the Federal National Mortgage Association, the Federal Home Loan Bank System, the Federal Home Loan Mortgage Corporation or the Federal Farm Credit Bank) which is either (i) rated in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Service, or (ii) backed by the full faith and credit of the United States of America;
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(d) U.S. denominated deposit account, certificates of deposit and banker’s acceptances of any bank, trust company, or savings and loan association, including the Master Trustee or the Bond Trustee or their affiliates, which have a rating on their short-term certificates of deposit on the date of purchase in one of the two highest short-term rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency, and , which mature not more than 365 days after the date of purchase;
(e) commercial paper which is rated at the time of purchase in one of the two highest short-term rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency, and which matures not more than 270 days after the date of purchase;
(f) bonds, notes, debentures or other evidences of indebtedness issued or guaranteed by a corporation which are, at the time of purchase, rated by any Rating Agency in any of the three highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise);
(g) asset-backed securities, commercial mortgage-backed securities, or mortgage-backed securities which are, at the time of purchase, rated by any Rating Service in any of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise);
(h) investment agreements with banks (including the Bond Trustee or any of its affiliates) that at the time of purchase rated in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) assigned by any Rating Agency or investment agreements with non-bank financial institutions, provided that (1) all of the unsecured, direct long-term debt of either the non-bank financial institution or the related guarantor of such non-bank financial institution is rated by any Rating Agency at the time the agreement is executed in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise) for obligations of that nature; or (2) if the non-bank financial institution and any related guarantor have no outstanding long-term debt that is rated, all of the short-term debt of either the non-bank financial institution or the related guarantor of the non-bank financial institution is at the time of purchase rated by any Rating Agency in one of the two highest rating categories (without regard to any refinement or gradation of the rating category by numerical modifier or otherwise) assigned to short-term indebtedness by any Rating Agency. If such non-bank financial institution and any guarantor do not have any short-term or long-term debt, but do have a rating in one of the two highest rating categories (without regard to any refinement or gradation of rating category by numerical modifier or otherwise), then investment agreements with the non-bank financial institution will be permitted;
(i) repurchase agreements with respect to and secured by Government Obligations or by obligations described in clause (b) and (c) above, which agreements may be entered into with a bank (including the Bond Trustee or its affiliates), a trust company, financial services firm or a broker dealer (including any broker dealer affiliated with the Bond Trustee) which is a member of the Securities Investors Protection Corporation, provided that (i) the Bond Trustee or a custodial agent of the Bond Trustee has possession of the collateral and that the collateral is free and clear of third-party claims, (ii) a master repurchase agreement or specific written repurchase agreement governs the transaction, (iii) the collateral securities are valued no less frequently than monthly, and (iv) the fair market value of the collateral securities in relation to the amount of the repurchase obligation, including principal and interest, is equal to at least 103%;
(j) investments in a money market fund, including funds of the Bond Trustee or its affiliates, rated (at the time of purchase) in the highest rating category for this type of investment by any Rating Agency; and
(k) shares in any investment company, money market mutual fund, fixed income mutual fund, Exchange Traded Fund or other collective investment fund registered under the federal Investment Company Act of 1940, whose shares are registered under the Securities Act of 1933, and whose investments consist solely of Qualified Investments as defined in paragraphs (a) through (j) above,
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including money market mutual funds from which the Bond Trustee or its affiliates derive a fee for investment advisory or other services to the fund.
The Bond Trustee shall be entitled to assume that any investment which at the time of purchase is a Qualified Investment remains a Qualified Investment thereafter, absent receipt of written notice to the contrary.
For the purposes of this definition, obligations issued or held in the name of the Bond Trustee (or in the name of the Issuer and payable to the Bond Trustee) in book-entry form on the books of the Department of Treasury of the United States shall be deemed to be deposited with the Bond Trustee.
"Rating Agency" or "Rating Service" means Moody’s, Standard & Poor’s or Fitch, and their respective successors and assigns.
"Rebate Fund" means any Rebate Fund created by a Related Bond Indenture or other document delivered in connection with the issuance of Related Bonds.
"Record Date" means, as to the Series 2014 Bonds, the first day of each May and November, commencing May 1, 2015.
"Reimbursement Agreement" means the Amended and Restated Reimbursement, Credit and Security Agreement dated December 1, 2014, as supplemented and amended, between the Corporation and the Bank, pursuant to which a direct-pay letter of credit has been delivered by the Bank, to secure the payment of principal of and interest on the Series 2004A Bonds.
"Related Bond Indenture" means the Bond Indenture and any indenture, bond resolution or similar instrument pursuant to which any series of Related Bonds is issued.
"Related Bond Trustee" means the Bond Trustee and any other trustee under any Related Bond Indenture and any successor trustee thereunder or, if no trustee is appointed under a Related Bond Indenture, the Related Issuer.
"Related Bonds" means the Series 2014 Bonds and any other revenue bonds or similar obligations the proceeds of which are loaned or otherwise made available to any Member in consideration, whether in whole or in part, of the execution, authentication and delivery of an Obligation or Obligations.
"Related Issuer" means the Issuer and any other issuer of a series of Related Bonds.
"Related Loan Document" means the Sublease and any other document or documents (including without limitation any lease, sublease or installment sales contract), pursuant to which any proceeds of any Related Bonds are advanced to any Member (or any Property financed or refinanced with such proceeds is leased, subleased or sold to a Member).
"Required Information Recipients" means the Master Trustee, the Initial Purchaser, each Related Bond Trustee, EMMA or any other nationally recognized municipal securities information repositories identified by the Securities and Exchange Commission, the Issuer, and all owners of any Related Bonds who request such reports in writing (which written request shall include a certification as to such ownership).
"Residency Agreement" means any written agreement or contract, as amended from time to time, between a Member and a resident or potential resident of a Facility giving the resident certain rights of occupancy in the Facility, including without limitation, independent living units, assisted living units, memory support units, nursing beds or specialty care beds and providing for certain services to such resident including any reservation agreement or other agreement or contract reserving rights of occupancy.
"Revenues" means, for any period, (a) in the case of any Person providing health care services and/or senior living services, the sum of (i) resident service revenues plus (ii) other operating revenues, plus (iii) non-operating revenues (other than Contributions, income derived from the sale or other disposition of assets not in the ordinary course of business or any gain from the extinguishment of debt or other extraordinary item or earnings which constitute Funded Interest or earnings on amounts which are irrevocably deposited in escrow to pay the
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principal of or interest on Indebtedness), plus (iv) Unrestricted Contributions, plus (v) Entrance Fees (other than Initial Entrance Fees) received minus (A) Entrance Fees amortized during such Fiscal Year and (B) Entrance Fees refunded to residents; and (b) in the case of any other Person, gross revenues less sale discounts and sale returns and allowances, as determined in accordance with generally accepted accounting principles; but excluding in either case (i) any unrealized gain or loss resulting from changes in the valuation of investment securities or unrealized changes in the value of derivative instruments, (ii) any gains on the sale or other disposition of fixed or capital assets not in the ordinary course, (iii) earnings resulting from any reappraisal, revaluation or write-up of fixed or capital assets, (iv) any revenues recognized from deferred revenues related to entrance fees or (v) insurance (other than business interruption) and condemnation proceeds; provided, however, that if such calculation is being made with respect to the Obligated Group, such calculation shall be made in such a manner so as to exclude any revenues attributable to transactions between any Member and any other Member. For purposes of calculations under the Master Indenture, an Unrestricted Contribution from an Affiliate shall be treated as being made during the period of such calculation so long as the Unrestricted Contribution is made prior to the date the applicable certificate is required to be delivered with respect to such calculation. For purposes of any calculation under the Master Indenture that is made with reference to both Revenues and Expenses, any deduction from gross resident service revenues otherwise required by this definition shall not be made if and to the extent that the amount of such deduction is included in Expenses.
"Rule 15c2-12" means Rule 15c2-12 of the Securities and Exchange Commission promulgated under the Securities Exchange Act of 1934 as amended.
"Series 2004A Bond Indenture" means the Trust Indenture dated as of August 1, 2004 between the Issuer and the Bond Trustee, pursuant to which the Series 2004A Bonds were issued, as it may be amended or supplemented from time to time.
"Series 2004A Bonds" means the $13,805,000 County of Franklin, Ohio Adjustable Rate Demand Health Care Facilities Revenue Refunding Bonds, Series 2004A (Friendship Village of Dublin, Ohio, Inc.).
"Series 2004A LOC Obligation" means the $7,541,630.30 Direct Note Obligation, Series 2004A LOC, issued under the Master Indenture in substantially the form attached thereto as Exhibit B-1, as security for the payments under the Reimbursement Agreement.
"Series 2004A Obligation" means the $7,470,000 Direct Note Obligation, Series 2004A, issued under the Master Indenture in substantially the form attached thereto as Exhibit B-2, as security for the Series 2004A Bonds.
"Series 2014 Obligation" means the $23,315,000 Direct Note Obligation, Series 2014, issued under the Master Indenture in substantially the form attached thereto as Exhibit B-3, as security for the Series 2014 Bonds.
"Short-Term," when used in connection with Indebtedness, means having an original maturity less than or equal to one year and not renewable at the option of the debtor for a term greater than one year beyond the date of original issuance.
"Special Record Date" means, with respect to any Series 2014 Bonds, the date established by the Bond Trustee in connection with the payment of overdue interest on that Series 2014 Bond pursuant to the Bond Indenture.
"Stable Occupancy" means with respect to any facility financed with Indebtedness for which the Master Trustee was furnished a Consultant’s report pursuant to the Master Indenture (or, if no Consultant’s report was required by the Master Indenture, an Officer’s Certificate), the percentage of Occupied units in that facility at the level reflected as substantially at the sustainable capacity for which such facility was designed or "stabilized occupancy" for that facility in the Consultant’s report or the Officer’s Certificate.
"Standard & Poor’s" or "S&P" means Standard & Poor’s Ratings Services, a division of The McGraw-Hill Companies Inc., a corporation organized and existing under the laws of the State of New York, its successors and assigns, and, if such corporation shall be dissolved or liquidated or shall no longer perform the functions of a securities rating agency, "Standard & Poor’s" or "S&P" shall be deemed to refer to any other nationally recognized securities rating agency designated by, for purposes of the Master Indenture, the Obligated Group Agent and, for the purposes of the Series 2014 Bonds, by the Obligated Group Agent by notice to the Bond Trustee, the Issuer and the Corporation.
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"State" means the State of Ohio.
"Sublease" means the Sublease dated as of December 1, 2014 between the Corporation and the Issuer, making available the proceeds of the Series 2014 Bonds to the Corporation.
"Subordinated Indebtedness" Indebtedness which meets the requirements set forth in Exhibit F in the Master Indenture.
"Supplemental Master Indenture" means an indenture amending or supplementing the Master Indenture entered into pursuant to the Master Indenture.
"Tax-Exempt Organization" means a Person organized under the laws of the United States of America or any state thereof which is an organization described in Section 501(c)(3) of the Code, which is exempt from federal income taxes under Section 501(a) of the Code and is not a "private foundation" within the meaning of Section 509(a) of the Code, or corresponding provisions of federal income tax laws from time to time in effect. "Tax-Exempt Organization" shall include a limited liability company which has as its sole member a Tax-Exempt Organization, as it derives its tax status for federal income tax purposes from its sole member.
"Tax Exemption Agreement" means the Tax Exemption Certificate and Agreement dated as of the date of issuance of the Series 2014 Bonds among the Corporation, the Issuer and the Bond Trustee, as the same may be amended from time to time, and such other similar tax exempt certificate and agreement that may be entered into in connection with other Related Bonds.
"Trust Estate" shall have the meaning set forth in the Granting Clauses of the Master Indenture or the Bond Indenture, as the case may be.
"Unassigned Rights," with respect to the Issuer, means the Issuer's rights to execute and deliver supplements and amendments to the Sublease pursuant to the Sublease; to be reimbursed by the Corporation for reasonable fees and expenses incurred by the Issuer; and to be indemnified by the Corporation for any liability incurred by the Issuer as required by the Sublease; which rights are not assigned by the Issuer to the Master Trustee or the Bond Trustee, but for the protection of which the Master Trustee and/or the Bond Trustee may act on behalf of the Issuer.
"United States Government Obligations" means direct obligations of, or obligations the timely payment of the principal of and interest on which is fully guaranteed by, the United States of America, including obligations issued or held in book entry form on the books of the Department of Treasury of the United States of America.
"Unrestricted Contributions" means Contributions, including any payment received from an Affiliate of an Obligated Group Member, which are not restricted in any way that would prevent their application to the payment of debt service on Indebtedness of the Person receiving such Contributions.
"Valuation Date" means each Interest Payment Date applicable to the Series 2014 Bonds for each year the Series 2014 Bonds are Outstanding.
"Written Request" means, with respect to the Bond Indenture, a request in writing signed by the Authorized Lessee Representative or alternate Authorized Lessee Representative, and with respect to the Master Indenture, with reference to a Related Issuer, a request in writing signed by the Chairman, Vice Chairman, Mayor, Clerk, President, Vice President, Executive Director, Director of Finance, Associate Executive Director, Secretary, Assistant Secretary or any other authorized officer of the Related Issuer and with reference to any Member means a request in writing signed by the President, any Vice President, or any other officers designated by such Member, as the case may be.
SUMMARY OF CERTAIN PROVISIONS OF THE MASTER INDENTURE
The Master Indenture contains various covenants, security provisions, terms and conditions, certain of which are summarized below. Reference is made to the Master Indenture for a full and complete statement of its provisions.
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Payment of Principal, Premium, if any, and Interest
Each Member unconditionally and irrevocably (subject to the right of such Member to cease its status as a Member of the Obligated Group pursuant to the terms and conditions of the Master Indenture summarized below under the caption "Summary of Certain Provisions of the Master Indenture - Cessation of Status as a Member of the Obligated Group"), jointly and severally covenants that it will promptly pay the principal of, premium, if any, and interest on every Obligation issued under the Master Indenture at the place, on the dates and in the manner provided therein and in said Obligations according to the true intent and meaning thereof. Notwithstanding any schedule of payments upon the Obligations set forth in the Master Indenture or in the Obligations, each Member unconditionally and irrevocably (subject to the right of such Member to cease its status as a Member of the Obligated Group pursuant to the terms and conditions of the Master Indenture summarized below under the caption "Summary of Certain Provisions of the Master Indenture - Cessation of Status as a Member of the Obligated Group"), jointly and severally agrees to make payments upon each Obligation and be liable therefor at the times and in the amounts (including principal, interest and premium, if any) equal to the amounts to be paid as interest, principal at maturity or by mandatory sinking fund redemption, or premium, if any, upon any Related Bonds from time to time Outstanding.
Covenants as to Corporate Existence, Maintenance of Properties, and Similar Matters; Right of Contest
Each Member covenants in the Master Indenture to:
(a) Except as otherwise expressly provided in the Master Indenture (i) preserve its corporate or other separate legal existence, (ii) preserve all its rights and licenses to the extent necessary or desirable in the operation of its business and affairs and (iii) be qualified to do business and conduct its affairs in each jurisdiction where its ownership of Property or the conduct of its business or affairs requires such qualification; provided, however, that nothing in the Master Indenture contained shall be construed to obligate such Member to retain, preserve or keep in effect the rights, licenses or qualifications no longer used or, in the judgment of its Governing Body, useful in the conduct of its business.
(b) With respect to any Member which is, on the date it becomes a Member, a Tax-Exempt Organization, maintain its status as a Tax-Exempt Organization throughout the term of the Master Indenture unless (i) the Governing Body determines that such status is not necessary or useful, and (ii) prior to the cessation of such status there is delivered to the Master Trustee (x) an Opinion of Bond Counsel to the effect that such change in status will not have an adverse effect on the exemption of interest on any Related Bond from federal income taxation to which such Bond is otherwise entitled or the validity or enforceability of any Related Bond, and (y) an opinion of Independent Counsel to the effect that registration of the Obligations under the Securities Act of 1933, as amended, is not required or that such Obligations have been so registered.
(c) At all times use its Facilities only in furtherance of its lawful corporate purposes and cause its business to be carried on and conducted and its Property and each part thereof to be maintained, preserved and kept in good repair, working order and condition and in as safe condition as its operations will permit and make all necessary and proper repairs (interior and exterior, structural and non-structural, ordinary as well as extraordinary and foreseen as well as unforeseen), renewals and replacements thereof so that its operations and business shall at all times be conducted in an efficient, proper and advantageous manner; provided, however, that nothing in the Master Indenture contained shall be construed (i) to prevent it from ceasing to operate any portion of its Property, if in its reasonable judgment (evidenced, in the case of such a cessation other than in the ordinary course of business, by a determination by its Governing Body) it is advisable not to operate the same, or if it intends to sell or otherwise dispose of the same and within a reasonable time endeavors to effect such sale or other disposition, or (ii) to obligate it to retain, preserve, repair, renew or replace any Property, leases, rights, privileges or licenses no longer used or, in the judgment of its Governing Body, useful in the conduct of its business.
(d) Pay or cause to be paid: (i) all taxes, levies, assessments and charges on account of the use, occupancy or operation of its Property, including but not limited to all sales, use, occupation, real and personal property taxes, all permit and inspection fees, occupation and license fees and all water, gas, electric, light, power or other utility charges assessed or charged on or against its Property or on account of its use or occupancy thereof or the activities conducted thereon or therein; and (ii) all taxes, assessments and impositions, general and special, ordinary and extraordinary, of every name and kind, which shall be
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taxed, levied, imposed or assessed during the term of the Master Indenture upon all or any part of its Property, or its interest or the interest of any Related Issuer or either of them in and to its Property, or upon its interest or the interest of any Related Issuer or the interest of either of them in the Master Indenture or the amounts payable thereunder or under the Obligations. If under applicable law any such tax, levy, charge, fee, rate, imposition or assessment may at the option of the taxpayer be paid in installments, any Member may exercise such option.
(e) Not create or permit to be created or remain and, at its cost and expense, promptly discharge or terminate all Liens on its Property or any part thereof which are not Permitted Encumbrances.
(f) At its sole cost and expense, promptly comply with all present and future laws, ordinances, orders, decrees, decisions, rules, regulations and requirements of every duly constituted governmental authority, commission and court and the officers thereof which may be applicable to it or any of its affairs, business, operations and Property, any part thereof, any of the streets, alleys, passageways, sidewalks, curbs, gutters, vaults and vault spaces adjoining any of its Property or any part thereof or to the use or manner of use, occupancy or condition of any of its Property or any part thereof.
(g) Promptly pay or otherwise satisfy and discharge all of its obligations and Indebtedness and all demands and claims against it as and when the same become due and payable which if not so paid, satisfied or discharged would constitute a default or an event of default under subparagraph (d) of the provisions of the Master Indenture summarized below under the caption "Summary of Certain Provisions of the Master Indenture - Events of Default."
(h) At all times comply with all terms, covenants and provisions of any Liens at such time existing upon its Property or any part thereof or securing any of its Indebtedness.
(i) Procure and maintain all necessary licenses and permits and use its best efforts to maintain the status of its health care Facilities (other than those not currently having such status or not having such status on the date a Person becomes a Member under the Master Indenture) as providers of health care services eligible for payment under those third-party payment programs which its Governing Body determines are appropriate, provided that it need not comply with this paragraph (i) if and to the extent that its management has determined that such compliance is not in the best interest of the Member and the lack of such compliance would not materially impair the ability of the Member to make payments on the Obligations.
(j) In the case of the Corporation and each Member which is a Tax-Exempt Organization at the time it becomes a Member, so long as the Master Indenture shall remain in force and effect and so long as all amounts due or to become due on all Related Bonds have not been fully paid to the holders thereof or provision for such payment has not been made, to take no action or suffer any action to be taken by others, including any action which would result in the alteration or loss of its status as a Tax-Exempt Organization, which could result in any such Related Bond being declared invalid or result in the interest on any Related Bond, which is otherwise exempt from federal or state income taxation, becoming subject to such taxation.
(k) Operate all of its Facilities so as not to discriminate on a legally impermissible basis.
(l) In the case of the Corporation and each Member which is a Tax-Exempt Organization at the time it becomes a Member, not distribute any of its revenues, income or profits, whether realized or unrealized, to any of its members, directors or officers or allow the same to inure to the benefit of any private person, association or corporation, other than for the lawful corporate purposes of such Member, as the case may be; provided, further, that no such distribution shall be made which is not permitted by the legislation pursuant to which such Member is governed or which would result in the loss or alteration of its status as a Tax-Exempt Organization.
The foregoing notwithstanding, any Member may (i) cease to be a nonprofit corporation, (ii) take actions which could result in the alteration or loss of its status as a Tax-Exempt Organization or (iii) distribute its revenues, income or profits to any of its members, directors or officers or allow the same to inure to the benefit of a private person, association or corporation if (1) prior thereto there is delivered to the Master Trustee an Opinion of Bond Counsel to the effect that such actions would not adversely affect the validity of any Related Bond, the exemption from federal or state income taxation of interest payable on any Related Bond otherwise entitled to such exemption
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or adversely affect the enforceability in accordance with its terms of the Master Indenture against any Member and (2) after such action the Obligated Group could meet the conditions described in subparagraph (a) summarized below under the caption "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness" for the incurrence of one dollar of additional Funded Indebtedness.
For the purposes of the provisions of the Master Indenture summarized under this caption (other than subparagraph (e) thereof), the terms Property and Facilities shall be deemed to include Excluded Property.
No Member shall be required to pay any tax, levy, charge, fee, rate, assessment or imposition referred to above, to remove any Lien required to be removed by the provisions summarized under this caption, pay or otherwise satisfy and discharge its obligations, Indebtedness (other than Indebtedness evidenced by Obligations), demands and claims against it or to comply with any Lien, law, ordinance, rule, order, decree, decision, regulation or requirement referred to in the provisions summarized under this caption, so long as such Member shall contest, in good faith and at its cost and expense, in its own name and behalf, the amount or validity thereof, in an appropriate manner or by appropriate proceedings which shall operate during the pendency thereof to prevent the collection of or other realization upon the tax, levy, charge, fee, rate, assessment, imposition, obligation, Indebtedness, demand, claim or Lien so contested, and the sale, forfeiture, or loss of its Property or any part thereof, provided, that no such contest shall subject any Related Issuer, any Obligation holder or the Master Trustee to the risk of any liability. While any such matters are pending, such Member shall not be required to pay, remove or cause to be discharged the tax, levy, charge, fee, rate, assessment, imposition, obligation, Indebtedness, demand, claim or Lien being contested, unless such Member agrees to settle such contest and payments under such settlement agreement are deemed to be due and payable. Each such contest shall be promptly prosecuted to final conclusion (subject to the right of such Member engaging in such a contest to settle such contest), and in any event the Member will save all Related Issuers, all Related Bond Trustees, all Obligation Holders and the Master Trustee harmless from and against all losses, judgments, decrees and costs (including attorneys’ fees and expenses in connection therewith) as a result of such contest and will, promptly after the final determination of such contest or settlement thereof, pay and discharge the amounts which shall be levied, assessed or imposed or determined to be payable therein, together with all penalties, fines, interests, costs and expenses thereon or incurred in connection therewith. The Member engaging in such a contest shall give the Master Trustee prompt written notice of any such contest and provide the Master Trustee with an opinion of Independent Counsel, that nonpayment of any of the foregoing items will not subject the Property of such Member or any substantial part thereof to imminent loss or forfeiture. If such opinion is not able to be rendered and delivered such Member shall promptly pay all such unpaid items and cause them to be satisfied and discharged. Each Member waives, to the extent permitted by law, any right which it may have to contest (i) any Obligation issued for the benefit of another Member or (ii) any Obligation issued to secure or in connection with Related Bonds.
If the Master Trustee shall notify such Member that, in the opinion of Independent Counsel, by nonpayment of any of the foregoing items the Property of such Member or any substantial part thereof will be subject to imminent loss or forfeiture, then such Member shall promptly pay all such unpaid items and cause them to be satisfied and discharged.
Insurance
Each Member shall maintain, or cause to be maintained at its sole cost and expense, insurance with respect to its Property, the operation thereof and its business against such casualties, contingencies and risks (including but not limited to public liability and employee dishonesty) and in amounts not less than is customary in the case of corporations engaged in the same or similar activities and similarly situated and as is adequate to protect its Property and operations. For purposes of the provisions of the Master Indenture summarized under this caption, the term Property shall be deemed to include Excluded Property. The Obligated Group Agent shall annually review the insurance each Member maintains to determine whether such insurance is customary and adequate. In addition, if requested to do so by the Master Trustee, the Obligated Group Agent shall (commencing no earlier than its Fiscal Year ending June 30, 2015) cause a certificate of an Insurance Consultant or Insurance Consultants to be delivered to the Master Trustee within 150 days of the end of each Fiscal Year which certificate indicates that the insurance then being maintained by the Members is customary in the case of corporations engaged in the same or similar activities and similarly situated and is adequate to protect the Obligated Group’s Property and operations. The Obligated Group Agent shall, if so requested by the Master Trustee, cause copies of the certificates of the Insurance Consultant or Insurance Consultants, as the case may be, to be delivered promptly to the Master Trustee. The Obligated Group or any Member may self-insure if the Insurance Consultant or Insurance Consultants determine(s) that such self-insurance meets the standards set forth in the first sentence of this paragraph and is prudent under the
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circumstances; provided, however, that no Member of the Obligated Group shall self-insure any of its Property, Plant and Equipment. The Master Trustee makes no representations as to and shall have no responsibility for the existence or sufficiency of the insurance.
Rates and Charges
Each Member covenants and agrees to operate all of its Facilities on a revenue-producing basis and to charge such fees and rates for its Facilities and services and to exercise such skill and diligence, including obtaining payment for services provided, as to provide income from its Property together with other available funds sufficient to pay promptly all payments of principal and interest on its Indebtedness, all expenses of operation, maintenance and repair of its Property and all other payments required to be made by it pursuant to the Master Indenture to the extent permitted by law. Each Member further covenants and agrees that it will from time to time as often as necessary and to the extent permitted by law, revise its rates, fees and charges in such manner as may be necessary or proper to comply with the provisions of the Master Indenture summarized under this caption.
The Members covenant and agree that the Obligated Group Agent will calculate the Historical Debt Service Coverage Ratio of the Obligated Group for each Fiscal Year, commencing with the Fiscal Year ending on June 30, 2015, and to deliver a copy of such calculation to the Required Information Recipients in connection with the delivery of the reports required by the provisions of the Master Indenture summarized in subparagraph (d) under the caption "Summary of Certain Provisions of the Master Indenture - Financial Statements and Related Matters."
If the Historical Debt Service Coverage Ratio of the Obligated Group is less than 1.20:1 for any Fiscal Year, the Obligated Group, at the Obligated Group’s expense, shall be required to select a Consultant within 30 days following the calculation described above to make recommendations with respect to the rates, fees and charges of the Members and the Obligated Group’s methods of operation and other factors affecting its financial condition in order to generate a Historical Debt Service Coverage Ratio of at least 1.20:1 for the following Fiscal Year. The Obligated Group Agent shall notify the Master Trustee in writing of such selection. The Consultant selected as required by the provisions of the Master Indenture summarized under this caption shall be approved and retained as set forth in the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Approval of Consultants."
A copy of the Consultant’s report and recommendations, if any, shall be filed with each Member, the Master Trustee and each Required Information Recipient within 60 days of retaining the Consultant. Each Member shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of such Member) and permitted by law. The provisions of the Master Indenture summarized under this caption shall not be construed to prohibit any Member from serving indigent residents to the extent required for such Member to continue its qualification as a Tax-Exempt Organization or from serving any other class or classes of residents without charge or at reduced rates so long as such service does not prevent the Obligated Group from satisfying the other requirements described in the provisions summarized under this caption.
The foregoing provisions notwithstanding, if the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year does not meet the level required above, the Obligated Group shall not be obligated to retain a Consultant to make such recommendations if: (a) there is filed with the Master Trustee (who shall provide a copy to each Required Information Recipient) a written report addressed to them of a Consultant (which Consultant and report, including without limitation the scope, form, substance and other aspects of such report, are not objected to by the Master Trustee) which contains an opinion of such Consultant that applicable laws or regulations have prevented the Obligated Group from generating Income Available for Debt Service during such Fiscal Year sufficient to meet the requirements of the provisions of the Master Indenture summarized under this caption, and such report is accompanied by a concurring opinion of Independent Counsel (which Counsel and opinion, including without limitation the scope, form, substance and other aspects thereof, are not objected to by the Master Trustee) as to any conclusions of law supporting the opinion of such Consultant; (b) the report of such Consultant indicates that the rates charged by the Obligated Group are such that, in the opinion of the Consultant, the Obligated Group has generated the maximum amount of Revenues reasonably practicable given such laws or regulations; and (c) the Historical Debt Service Coverage Ratio of the Obligated Group for such Fiscal Year was at least 1.00:1. The Obligated Group shall not be required to cause the Consultant’s report referred to in the preceding sentence to be prepared more frequently than once every two Fiscal Years if at the end of the first of such two Fiscal Years the Obligated Group provides to the Master Trustee (who shall provide a copy to each Related Bond Trustee) an opinion of Independent Counsel (which Counsel and opinion, including without limitation the scope, form, substance and
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other aspects thereof, are not objected to by the Master Trustee) to the effect that the applicable laws and regulations underlying the Consultant’s report delivered in respect of the previous Fiscal Year have not changed in any material way.
Notwithstanding any other provisions of the Master Indenture, in the event that any Member of the Obligated Group incurs any Additional Indebtedness for any acquisition, construction, renovation or replacement project pursuant to any other provisions of the Master Indenture, the Debt Service Requirements on such Additional Indebtedness and the Revenues and Expenses relating to the project or projects financed with the proceeds of such Additional Indebtedness shall be excluded from the calculation of the Historical Debt Service Coverage Ratio of the Obligated Group for the purposes of complying with the provisions of the Master Indenture summarized under this caption, until the first full Fiscal Year following the later of (i) the estimated completion of the acquisition, construction, renovation or replacement project being paid for with the proceeds of such Additional Indebtedness provided that such completion occurs no later than six months following the completion date for such project set forth in the Consultant’s report described in (A) below, or (ii) the first full year in which Stable Occupancy is achieved in the case of construction, renovation or replacement of elderly housing facilities or nursing facilities financed with the proceeds of such Additional Indebtedness, which Stable Occupancy shall be projected in the report of the Consultant referred to in paragraph (A) below to occur no later than during the fourth full Fiscal Year following the incurrence of such Additional Indebtedness, or (iii) the end of the fourth full Fiscal Year after the incurrence of such Additional Indebtedness, if the following conditions are met:
(A) there is delivered to the Master Trustee a report or opinion of a Consultant to the effect that the Projected Debt Service Coverage Ratio for each of the first two full Fiscal Years following the later of (I) the estimated completion of the acquisition, construction, renovation or replacement being paid for with the proceeds of such Additional Indebtedness, or (II) the first full Fiscal Year following the year in which Stable Occupancy is achieved in the case of construction, renovation or replacement of elderly housing facilities or nursing facilities being financed with the proceeds of such Additional Indebtedness, which Stable Occupancy shall be projected to occur no later than during the fourth full Fiscal Year following the incurrence of such Additional Indebtedness, will be not less than 1.20:1 after giving effect to the incurrence of such Additional Indebtedness and the application of the proceeds thereof; provided, however, that in the event that a Consultant shall deliver a report to the Master Trustee to the effect that state or Federal laws or regulations or administrative interpretations of such laws or regulations then in existence do not permit or by their application make it impracticable for Members to produce the required ratio, then such ratio shall be reduced to the highest practicable ratio then permitted by such laws or regulations but in no event less than 1.00:1; provided, however, that in the event a Consultant’s report is not required to incur such Additional Indebtedness, the Obligated Group may deliver an Officer’s Certificate to the Master Trustee in lieu of the Consultant’s report described in this subparagraph (A); and
(B) there is delivered to the Master Trustee an Officer’s Certificate on the date on which financial statements are required to be delivered to the Master Trustee pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Financial Statements and Related Matters" until the first Fiscal Year in which the exclusion from the calculation of the Historical Debt Service Coverage Ratio no longer applies, calculating the Historical Debt Service Coverage Ratio of the Obligated Group at the end of each Fiscal Year, and demonstrating that such Historical Debt Service Coverage Ratio is not less than 1.00:1, such Historical Debt Service Coverage Ratio to be computed without taking into account (I) the Additional Indebtedness to be incurred if (x) the interest on such Additional Indebtedness during such period is funded from proceeds thereof or other funds of the Member then on hand and available therefor and (y) no principal of such Additional Indebtedness is payable during such period, and (II) the Revenues to be derived from the project to be financed from the proceeds of such Additional Indebtedness.
Except as provided in the previous paragraph with respect to Additional Indebtedness, no event of default relating to the requirements described under this caption may be declared unless (i) the Obligated Group fails to take all necessary action to comply with the procedures summarized above if the Historical Debt Service Coverage Ratio is less than 1.20:1 for any Fiscal Year; or (ii) the Historical Debt Service Coverage Ratio is less than 1.00:1 and the Days Cash on Hand is less than the Liquidity Requirement as of any June 30, commencing June 30, 2015; or (iii) the Historical Debt Service Coverage Ratio is less than 1.00:1 for any two consecutive Fiscal Years.
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Damage or Destruction
Each Member agrees to notify the Master Trustee promptly, in writing, in the case of the destruction of its Facilities or any material portion thereof as a result of fire or other casualty, or any damage to such Facilities or portion thereof as a result of fire or other casualty, the Net Proceeds of which are estimated to exceed the greater of (i) 3% of the Book Value or, at the option of the Obligated Group Agent, the Current Value of the Property, Plant and Equipment of the Obligated Group or (ii) $3,000,000 plus an amount equal to $3,000,000 multiplied by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from its level as of December 1, 2014. Each Member irrevocably assigns to the Master Trustee, as its interests may appear, all right, title and interest of such Member in and to any Net Proceeds relating to such damage or destruction, which exceeds the greater of (i) 3% of the Book Value or, at the option of the Obligated Group Agent, the Current Value of the Property, Plant and Equipment of the Obligated Group or (ii) $3,000,000 plus an amount equal to $3,000,000 multiplied by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from its level as of December 1, 2014. Such Net Proceeds shall be initially paid to the Master Trustee for disbursement or use as provided in the Master Indenture. If such Net Proceeds do not exceed the greater of (i) 3% of the Book Value or, at the option of the Obligated Group Agent, the Current Value of the Property, Plant and Equipment of the Obligated Group or (ii) $3,000,000, plus an amount equal to $3,000,000 multiplied by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from its level as of December 1, 2014, such Net Proceeds may be paid directly to the Member suffering such casualty or loss. The Members covenant that they will expend or contract to expend an amount not less than the amount of any such Net Proceeds within 24 months after receipt thereof to (i) repair, replace or restore the damaged or destroyed facilities, (ii) acquire or construct additional capital assets for any one or more Members, or (iii) prepay Obligations or repay the principal portion of any Indebtedness incurred by any one or more Members of the Obligated Group to acquire or construct capital assets or refinance Indebtedness incurred for such purpose.
In the event such Net Proceeds exceed the greater of (i) 3% of the Book Value or, at the option of the Obligated Group Agent, the Current Value of the Property, Plant and Equipment of the Obligated Group or (ii) $3,000,000 plus an amount equal to $3,000,000 multiplied by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from its level as of December 1, 2014, the Member suffering such casualty or loss shall within 12 months after the date on which the Net Proceeds are finally determined, elect by written notice to the Master Trustee one of the following three options:
(a) Option A-Repair and Restoration. Such Member may elect to replace, repair, reconstruct, restore or improve any of the Facilities of the Obligated Group or acquire additional Facilities for the Obligated Group or repay Indebtedness incurred for any such purpose pending the receipt of such Net Proceeds. In such event an amount equal to the Net Proceeds of any insurance relating thereto shall be deposited, when received, with the Master Trustee and such Member shall proceed forthwith to replace, repair, reconstruct, restore or improve Facilities of the Obligated Group or to acquire additional Facilities and will apply the Net Proceeds of any insurance relating to such damage or destruction received from the Master Trustee to the payment or reimbursement of the costs of such replacement, repair, reconstruction, restoration, improvement or acquisition or to the repayment of such Indebtedness. So long as the Members are not in default under the Master Indenture, any Net Proceeds of insurance relating to such damage or destruction received by the Master Trustee shall be released from time to time by the Master Trustee to such Member upon the receipt by the Master Trustee of:
(1) the Written Request of such Member specifying the expenditures made or to be made or the Indebtedness incurred in connection with such replacement, repair, reconstruction, restoration, improvement or acquisition and stating that such Net Proceeds, together with any other moneys legally available for such purposes, will be sufficient to complete such replacement, repair, reconstruction, restoration, improvement or acquisition; and
(2) if such expenditures were or are to be made or such Indebtedness was incurred for the construction or renovation of Facilities, the written approval of such Written Request (solely as to the sufficiency of the expenditures requested by a Member to complete such replacement, repair, reconstruction, restoration, improvement or acquisition) by an Independent Architect. If the written approval of an Independent Architect is not required under the provisions of the Master Indenture described in this subparagraph (2) the Written Request shall contain a certification stating that such approval is not required.
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It is further understood and agreed that in the event such Member shall elect this Option A, such Member shall complete the replacement, repair, reconstruction, restoration, improvement and acquisition of the Facilities, whether or not the Net Proceeds of insurance received for such purposes are sufficient to pay for the same.
(b) Option B-Prepayment of Obligations. Subject to the obligations of the Members summarized under the caption "Summary of Certain Provisions of the Master Indenture - Covenants as to Corporate Existence, Maintenance of Properties, and Similar Matters; Right of Contest," such Member may elect to have all of the Net Proceeds payable as a result of such damage or destruction applied to the prepayment of the Obligations. In such event such Member shall, in its notice of election to the Master Trustee, direct the Master Trustee to apply such Net Proceeds, when and as received, to the prepayment of Obligations in accordance with the provisions of the Master Indenture.
(c) Option C-Partial Restoration and Partial Prepayment of Obligations. Such Member may elect to have a portion of such Net Proceeds applied to the replacement, repair, reconstruction, restoration and improvement of the Facilities of the Obligated Group or the acquisition of additional Facilities for the Obligated Group or the repayment of Indebtedness incurred for any such purpose pending the receipt of such Net Proceeds with the remainder of such Net Proceeds to be applied to prepay Obligations, in which event such Net Proceeds to be used for replacement, repair, reconstruction, restoration, improvement and acquisition shall be applied as set forth in subparagraph (a) above and such Net Proceeds to be used for prepayment of the Obligations shall be applied as set forth in subparagraph (b) above.
The foregoing notwithstanding, no Member will be required to comply with the provisions of the Master Indenture summarized under this caption to the extent that the Facilities damaged or destroyed were pledged as security for Non-Recourse Indebtedness incurred in accordance with the conditions summarized in subparagraph (j) under the caption "Summary of Certain Provisions of the Master Indenture – Permitted Additional Indebtedness" or Indebtedness secured by Liens imposed in accordance with paragraph (y) of the definition of Permitted Encumbrances and the documents pursuant to which such Indebtedness was incurred require Net Proceeds to be applied in a manner inconsistent with the terms of the Master Indenture summarized under this caption.
Condemnation
The Master Trustee shall cooperate fully with the Members in the handling and conduct of any prospective or pending condemnation proceedings with respect to their Facilities or any part thereof. Each Member irrevocably assigns to the Master Trustee, as its interests may appear, all right, title and interest of such Member in and to any Net Proceeds of any award, compensation or damages payable in connection with any such condemnation or taking, or payment received in a sale transaction consummated under threat of condemnation (any such award, compensation, damages or payment being hereinafter referred to as an "award"), which exceeds the greater of (i) 3% of the Book Value or, at the option of the Obligated Group Agent, the Current Value of the Property, Plant and Equipment of the Obligated Group or (ii) $3,000,000 plus an amount equal to $3,000,000 multiplied by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from its level as of December 1, 2014. Such Net Proceeds shall be initially paid to the Master Trustee for disbursement or use as provided in the Master Indenture. If such Net Proceeds do not exceed the greater of (i) 3% of the Book Value or, at the option of the Obligated Group Agent, the Current Value of the Property, Plant and Equipment of the Obligated Group or (ii) $3,000,000 plus an amount equal to $3,000,000 multiplied by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from its level as of December 1, 2014, such Net Proceeds may be paid to the Member in question. The Members covenant that they will expend or contract to expend an amount not less than the amount of any such Net Proceeds within 24 months of the receipt thereof to (i) restore, replace or repair the condemned Facilities, (ii) acquire or construct additional capital assets, or (iii) prepay Obligations or repay the principal portion of Indebtedness incurred by one or more Members of the Obligated Group to acquire or construct capital assets or to refinance Indebtedness incurred for such purpose.
In the event such Net Proceeds exceed the greater of (i) 3% of the Book Value or, at the option of the Obligated Group Agent, the Current Value of the Property, Plant and Equipment of the Obligated Group or (ii) $3,000,000 plus an amount equal to $3,000,000 multiplied by a percentage equal to the aggregate percentage increase or decrease in the Construction Index from its level as of December 1, 2014, the Member in question shall within 12 months after the date on which the Net Proceeds are finally determined elect by written notice of such election to the Master Trustee one of the following three options:
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(a) Option A-Repairs and Improvements. The Member may elect to use the Net Proceeds of the award for restoration or replacement of or repairs and improvements to the Facilities of the Obligated Group or the acquisition of additional Facilities for the Obligated Group or the repayment of Indebtedness incurred for any such purpose pending the receipt of such Net Proceeds. In such event, so long as the Obligated Group is not in default under the Master Indenture, such Member shall have the right to receive such Net Proceeds from the Master Trustee from time to time upon the receipt by the Master Trustee of:
(1) the Written Request of such Member specifying the expenditures made or to be made or the Indebtedness incurred in connection with such restoration, replacement, repairs, improvements and acquisitions and stating that such Net Proceeds, together with any other moneys legally available for such purposes, will be sufficient to complete such restoration, replacement, repairs, improvements and acquisition; and
(2) if such expenditures were or are to be made or such Indebtedness was incurred for the construction or renovation of Facilities, the written approval of such Written Request (solely as to the sufficiency of the expenditures requested by the Member to complete such replacement, repair, reconstruction, restoration, improvement or acquisition) by an Independent Architect. If the written approval of an Independent Architect is not required under the provisions of the Master Indenture described in this subparagraph (2) the Written Request shall contain a certification stating that such approval is not required.
(b) Option B-Prepayment of Obligations. Subject to the obligation of such Member summarized under the caption "Summary of Certain Provisions of the Master Indenture - Covenants as to Corporate Existence, Maintenance of Properties, and Similar Matters; Right of Contest," such Member may elect to have such Net Proceeds of the award applied to the prepayment of the Obligations. In such event such Member shall, in its notice of election to the Master Trustee, direct the Master Trustee to apply such Net Proceeds, when and as received, to the prepayment of Obligations in accordance with the provisions of the Master Indenture.
(c) Option C-Partial Restoration and Partial Prepayment of Obligations. Such Member may elect to have a portion of such Net Proceeds of the award applied to the repair, replacement, restoration and improvement of the Facilities of the Obligated Group or the acquisition of additional Facilities for the Obligated Group or the repayment of Indebtedness incurred for any such purpose pending the receipt of such Net Proceeds, with the remainder of such Net Proceeds to be applied to the prepayment of Obligations, in which event such Net Proceeds to be used for repair, replacement, restoration, improvement and acquisition shall be applied as set forth in subparagraph (a) above and such Net Proceeds to be used for prepayment of the Obligations shall be applied as set forth in subparagraph (b) above.
The foregoing notwithstanding, no Member will be required to comply with the provisions of the Master Indenture summarized under this caption to the extent that the Facilities damaged or destroyed were pledged as security for Non-Recourse Indebtedness incurred in accordance with the conditions summarized in subparagraph (j) under the caption "Summary of Certain Provisions of the Master Indenture – Permitted Additional Indebtedness" or Indebtedness secured by Liens imposed in accordance with paragraph (y) of the definition of Permitted Encumbrances and the documents pursuant to which such Indebtedness was incurred require Net Proceeds to be applied in a manner inconsistent with the terms of the Master Indenture summarized under this caption.
Other Provisions with Respect to Net Proceeds
Amounts received by the Master Trustee in respect of Net Proceeds shall, at the Written Request of the Obligated Group Agent, be deposited with the Master Trustee in a special trust account and be invested or reinvested by the Master Trustee as directed in writing by the Obligated Group Agent in Permitted Investments subject to any Member’s right to receive the same pursuant to the provisions of the Master Indenture summarized under the captions "Summary of Certain Provisions of the Master Indenture – Damage or Destruction" and "—Condemnation." If any Member elects to repair and replace facilities under the Master Indenture, any amounts in respect of such Net Proceeds not so paid to such Member shall be used to prepay Obligations. Notwithstanding anything in the Master Indenture to the contrary, any moneys on deposit with the Master Trustee shall be invested in accordance with, and subject to the terms of, the Tax Exemption Agreement to the extent applicable.
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Merger, Consolidation, Sale or Conveyance
(a) Each Member agrees that it will not merge into, or consolidate with, one or more corporations which are not Members (it being understood that a Member may merge or consolidate with or sell all or substantially all of its assets to another Member without limitation), or allow one or more of such corporations to merge into it, or sell or convey all or substantially all of its Property to any Person who is not a Member, unless:
(i) Any successor corporation to such Member (including without limitation any purchaser of all or substantially all the Property of such Member) is a Person (other than a natural person) organized and existing under the laws of the United States of America or a state thereof and shall execute and deliver to the Master Trustee an appropriate instrument, satisfactory to the Master Trustee, containing the agreement of such successor corporation to assume, jointly and severally, the due and punctual payment of the principal of, premium, if any, and interest on all Obligations according to their tenor and the due and punctual performance and observance of all the covenants and conditions of the Master Indenture and the Mortgage to be kept and performed by such Member;
(ii) Immediately after such merger or consolidation, or such sale or conveyance, no Member would be in default in the performance or observance of any covenant or condition of any Related Loan Document or the Master Indenture;
(iii) Assuming that any Indebtedness of any successor or acquiring corporation is Indebtedness of such Member and that the Revenues and Expenses of the Member for such most recent Fiscal Year include the Revenues and Expenses of such other corporation (A) immediately after such merger or consolidation, sale or conveyance, the Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group for the most recent Fiscal Year for which financial statements that have been reported upon by independent certified public accountants are available would be not less than 1.20:1 or that such Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group is not less than the Historical Maximum Annual Debt Service Coverage Ratio of the Obligated Group was for such Fiscal Year prior to such merger or consolidation, sale or conveyance, and (B) immediately after such merger or consolidation, the Obligated Group Agent shall deliver an Officer’s Certificate stating that the Obligated Group is in compliance with the Liquidity Requirement as set forth on the most recent financial statements required to be delivered pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Financial Statements and Related Matters," or that such calculation of the Days Cash on Hand of the Obligated Group is greater than such calculation would be immediately prior to such merger, consolidation, sale or conveyance; and
(iv) If all amounts due or to become due on all Related Bonds have not been fully paid to the holders thereof or fully provided for, there shall be delivered to the Master Trustee an Opinion of Bond Counsel to the effect that under then existing law the consummation of such merger, consolidation, sale or conveyance would not adversely affect the validity of such Related Bonds or the exemption otherwise available from federal or state income taxation of interest payable on such Related Bonds.
(b) In case of any such consolidation, merger, sale or conveyance and upon any such assumption by the successor corporation, such successor corporation shall succeed to and be substituted for its predecessor, with the same effect as if it had been named in the Master Indenture as such Member. Each successor, assignee, surviving, resulting or transferee corporation of a Member must agree to become, and satisfy the conditions described in the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Entrance into the Obligated Group," to becoming, a Member of the Obligated Group prior to any such succession, assignment or other change in such Member’s corporate status. Any successor corporation to such Member thereupon may cause to be signed and may issue in its own name Obligations under the Master Indenture and the predecessor corporation shall be released from its obligations thereunder and under any Obligations, if such predecessor corporation shall have conveyed all Property owned by it (or all such Property shall be deemed conveyed by operation of law) to such successor corporation. All Obligations so issued by such successor
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corporation under the Master Indenture shall in all respects have the same legal rank and benefit under the Master Indenture as Obligations theretofore or thereafter issued in accordance with the terms of the Master Indenture as though all of such Obligations had been issued thereunder by such prior Member without any such consolidation, merger, sale or conveyance having occurred.
(c) In case of any such consolidation, merger, sale or conveyance such changes in phraseology and form (but not in substance) may be made in Obligations thereafter to be issued as may be appropriate.
(d) The Master Trustee may rely upon an opinion of Independent Counsel as conclusive evidence that any such consolidation, merger, sale or conveyance, and any such assumption, complies with the provisions of the Master Indenture summarized under this caption and that it is proper for the Master Trustee under the provisions of the Master Indenture to join in the execution of any instrument required to be executed and delivered by the provisions of the Master Indenture summarized under this caption.
Financial Statements and Related Matters
(a) The Members covenant that they will keep or cause to be kept proper books of records and accounts in which full, true and correct entries will be made of all dealings or transactions of or in relation to the business and affairs of the Obligated Group in accordance with generally accepted principles of accounting consistently applied except as may be disclosed in the notes to the audited financial statements referred to in subparagraph (b) below. To the extent that generally accepted accounting principles in the United States of America would require consolidation of certain financial information of entities which are not Members of the Obligated Group with financial information of one or more Members, or as may otherwise be determined by the Obligated Group Agent, consolidated financial statements prepared in accordance with generally accepted accounting principles which include information with respect to entities which are not Members of the Obligated Group may be delivered in satisfaction of the requirements of the Master Indenture summarized under this caption so long as: (i) supplemental information in sufficient detail to separately identify the information with respect to the Members of the Obligated Group is delivered to the Master Trustee with the audited financial statements; (ii) such supplemental information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements delivered to the Master Trustee and, in the opinion of the accountant, is fairly stated in all material respects in relation to the consolidated financial statements taken as a whole; and (iii) such supplemental information is used for the purposes of the Master Indenture or for any agreement, document or certificate executed and delivered in connection or pursuant to the Master Indenture.
(b) The Obligated Group Agent will furnish or cause to be furnished to the Required Information Recipients, the following:
(i) As soon as practicable after it is available but in no event more than 60 days after the completion of each fiscal quarter quarterly occupancy statistics and unaudited financial statements of the Obligated Group (including a report with respect to the fourth quarter of each fiscal year), including a combined or combining statement of revenues and expenses and statement of cash flows of the Obligated Group during such period and a combined or combining balance sheet as of the end of each such fiscal quarter with a comparison to the operating budget.
(ii) If the Historical Debt Service Coverage Ratio of the Obligated Group for any Fiscal Year is less than 1.00:1 or the Days Cash on Hand of the Obligated Group is less than the Liquidity Requirement for any Testing Date as provided in the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Liquidity Covenant," the Obligated Group will deliver the financial information and the calculations described in subparagraph (i) above on a monthly basis, with the Historical Debt Service Coverage Ratio calculated on a year-to-date basis each month, within 45 days of the end of each month until the Historical Debt Service Coverage Ratio of the Obligated Group is at least 1.00:1 and the Days Cash on Hand of the Obligated Group is at least equal to the Liquidity Requirement.
(iii) Within 150 days of the end of each Fiscal Year, commencing with the Fiscal Year ending June 30, 2015, an annual financial report of the Obligated Group audited by a firm of
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certified public accountants, including a combined and an unaudited combining balance sheet as of the end of such Fiscal Year and a combined and an unaudited combining statement of changes in fund balances for such Fiscal Year and a combined and an unaudited combining statement of revenues and expenses for such Fiscal Year, showing in each case in comparative form the financial figures for the preceding Fiscal Year, together with a separate written statement of the accountants auditing such report containing calculations of the Obligated Group’s Historical Debt Service Coverage Ratio for said Fiscal Year and of the Obligated Group’s Days Cash on Hand as of the last day of such Fiscal Year and if such accountants shall have obtained knowledge of any default or defaults under the Master Indenture, they shall disclose in such statement the default or defaults and the nature thereof.
(iv) On or before the date of delivery of the financial reports referred to in subparagraph (iii) above, an Officer’s Certificate of the Obligated Group Agent (A) stating that the Obligated Group is in compliance with all of the terms, provisions and conditions of the Master Indenture or if not, specify all such defaults and the nature thereof, (B) calculating and certifying Days Cash on Hand and Historical Debt Service Coverage Ratio as of the end of such fiscal period or Fiscal Year, as appropriate, (C) commencing with the Fiscal Year ending June 30, 2015, a comparison of the audited financial statements with the operating budget for the preceding Fiscal Year, and (D) an executive summary of any actuarial studies received by the Obligated Group during the preceding Fiscal Year, if any.
(v) At any time during the Fiscal Year, copies of any correspondence to or from the Internal Revenue Service questioning or contesting the status of a Member as an organization described in Section 501(c)(3) of the Code or with respect to the tax-exempt status of the Series 2014 Bonds or any Related Bonds the interest on which is excludable from the gross income of the owners thereof for federal income tax purposes, promptly upon receipt.
(c) The Obligated Group Agent shall furnish or cause to be furnished to the Master Trustee or any Related Bond Trustee, such additional information as the Master Trustee or any Related Bond Trustee may reasonably request concerning any Member in order to enable the Master Trustee or such Related Bond Trustee to determine whether the covenants, terms and provisions of the Master Indenture have been complied with by the Members and for that purpose all pertinent books, documents and vouchers relating to the business, affairs and Property (other than resident, donor and personnel records or any other confidential information with respect to residents) of the Members shall, to the extent permitted by law, at all times during regular business hours be open to the inspection of such accountant or other agent (who may make copies of all or any part thereof) as shall from time to time be designated by the Master Trustee or such Related Bond Trustee.
(d) The Members also agree that, within 10 days after its receipt thereof, the Obligated Group Agent will file with each Required Information Recipient a copy of each Consultant’s report or counsel’s opinion required to be prepared under the terms of the Master Indenture.
(e) The Obligated Group Agent shall give prompt written notice of a change of accountants by the Obligated Group to the Master Trustee and each Related Bond Trustee. The notice shall state (i) the effective date of such change; (ii) whether there were any unresolved disagreements with the former accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which the accountants claimed would have caused them to refer to the disagreement in a report on the disputed matter, if it was not resolved to their satisfaction; and (iii) such additional information relating thereto as such Related Bond Trustee or the Master Trustee may reasonably request.
(f) Without limiting the foregoing, each Member will permit, upon reasonable notice, the Master Trustee or any such Related Bond Trustee (or such persons as they may designate) to visit and inspect, at the expense of such Person, its Property and to discuss the affairs, finances and accounts of the Obligated Group with its officers and independent accountants, all at such reasonable times and locations and as often as the Master Trustee or such Related Bond Trustee may reasonably desire.
(g) The Obligated Group Agent may designate a different Fiscal Year for the Members of the Obligated Group by delivering a notice to the Master Trustee designating the first and last day of such new Fiscal Year and whether or not there will be any interim fiscal period (the "Interim Period") of a duration of
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greater than or less than 12 months preceding such new Fiscal Year. The Members covenant that they will furnish to the Master Trustee and each Related Bond Trustee, as soon as practicable after they are available, but in no event more than 150 days after the last day of such Interim Period, a financial report for such Interim Period certified by a firm of independent certified public accountants selected by the Obligated Group Agent covering the operations of the Obligated Group for such Interim Period and containing a combined balance sheet as of the end of such Interim Period and a combined statement of changes in fund balances and changes in financial position for such Interim Period and a combined statement of revenues and expenses for such Interim Period, showing in each case in comparative form the financial figures for the comparable period in the preceding Fiscal Year, together with a separate written statement of the accountants preparing such report containing a calculation of the Obligated Group’s Historical Debt Service Coverage Ratio for the Interim Period and a statement that such accountants have obtained no knowledge of any default by any Member in the fulfillment of any of the terms, covenants, provisions or conditions of the Master Indenture, or if such accountants shall have obtained knowledge of any such default or defaults, they shall disclose in such statement the default or defaults and the nature thereof (but such accountants shall not be liable directly or indirectly to anyone for failure to obtain knowledge of any default).
(h) If the most recent audited financial statements delivered pursuant to the provisions described in subsection (b)(iii) above show an increase in liabilities related to future service obligation, the Corporation shall select, within 30 days of the release of such audited financial statements, a Consultant to produce an actuarial study. Such Consultant shall be selected in accordance with the provisions described below under the caption "Approval of Consultants." The Corporation shall not be obligated to prepare such actuarial study if the Corporation has had an actuarial study prepared within the prior three (3) years and if the Corporation provided an executive summary of that actuarial study to the Required Information Recipients pursuant to the provisions described in subsection (b)(iv) above.
Permitted Additional Indebtedness
Subject to the last paragraph summarized under this caption, so long as any Obligations are Outstanding, the Obligated Group will not incur any Additional Indebtedness (whether or not incurred through the issuance of Additional Obligations) other than:
(a) Funded Indebtedness, if prior to incurrence thereof or, if such Funded Indebtedness was incurred in accordance with another subparagraph set forth below and any Member wishes to have such Indebtedness classified as having been issued under this subparagraph (a), prior to such classification, there is delivered to the Master Trustee:
(i) An Officer’s Certificate stating that the Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group for the most recent Fiscal Year preceding the date of delivery of the report for which combined financial statements reported upon by independent certified public accountants are available was not less than 1.20:1; or
(ii) (a) An Officer’s Certificate stating that the Historical Debt Service Coverage Ratio of the Obligated Group for the most recent Fiscal Year preceding the date of delivery of the report for which combined financial statements reported upon by independent certified public accountants are available was not less than 1.20:1; and (b) a written Consultant’s report prepared in accordance with industry standards to the effect that the Projected Debt Service Coverage Ratio of the Obligated Group is not less than 1.25:1 for the next succeeding Fiscal Year following the later of (I) the estimated completion of the acquisition, construction, renovation or replacement being paid for with the proceeds of such Additional Indebtedness, or (II) the first full Fiscal Year following Stable Occupancy in the case of construction, renovation or replacement of elderly housing facilities being financed with the proceeds of such Additional Indebtedness, which Stable Occupancy shall be projected to occur no later than during the fourth full Fiscal Year following the incurrence of such Additional Indebtedness or (III) the Fiscal Year in which such Funded Indebtedness for other purposes is being incurred; provided that such report shall include forecast balance sheets, statements of revenues and expenses and statements of changes in financial position for such Fiscal Year and a statement of the relevant assumptions upon which such forecasted statements are based, which financial statements must indicate that sufficient revenues and cash flow could be generated to pay the operating expenses of the Obligated Group’s
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proposed and existing Facilities and the debt service on the Obligated Group’s other existing Indebtedness during such Fiscal Year.
(b) Completion Funded Indebtedness if there is delivered to the Master Trustee: (i) an Officer’s Certificate of the Member for whose benefit such Indebtedness is being issued stating that at the time the original Funded Indebtedness for the Facilities to be completed was incurred, such Member had reason to believe that the proceeds of such Funded Indebtedness together with other moneys then expected to be available would provide sufficient moneys for the completion of such Facilities, (ii) a statement of an Independent Architect setting forth the amount estimated to be needed to complete the Facilities, and (iii) an Officer’s Certificate of such Member stating that the proceeds of such Completion Funded Indebtedness to be applied to the completion of the Facilities, together with a reasonable estimate of investment income to be earned on such proceeds and available to pay such costs, the amount of moneys, if any, committed to such completion from available cash or marketable securities and reasonably estimated earnings thereon, enumerated loans from Affiliates or bank loans (including letters or lines of credit) and federal or state grants reasonably expected to be available, will be in an amount not less than the amount set forth in the statement of an Independent Architect, which amount shall be no more than 10% of Funded Indebtedness originally incurred to finance the construction of such Facilities.
(c) Funded Indebtedness for the purpose of refunding (whether in advance or otherwise) any Outstanding Funded Indebtedness if prior to the incurrence thereof an Officer’s Certificate of a Member is delivered to the Master Trustee stating that, taking into account the issuance of the proposed Funded Indebtedness and the application of the proceeds thereof and any other funds available to be applied to such refunding, the Maximum Annual Debt Service Requirement of the Obligated Group will not be increased by more than 10%.
(d) Short-Term Indebtedness (other than accounts payable under subparagraph (i) below), in a total principal amount which at the time incurred does not, together with the principal amount of all other such Short-Term Indebtedness of the Obligated Group then Outstanding under the provisions of the Master Indenture summarized in this subparagraph (d) but excluding the principal payable on all Funded Indebtedness during the next succeeding 12 months and also excluding such principal to the extent that amounts are on deposit in an irrevocable escrow and such amounts (including, where appropriate, the earnings or other increments to accrue thereon) are required to be applied to pay such principal and such amounts so required to be applied are sufficient to pay such principal, exceed 10% of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported upon by independent certified public accountants are available; provided, however, that for a period of 20 consecutive calendar days in each Fiscal Year the total amount of such Short-Term Indebtedness of the Obligated Group Obligations under the provisions of the Master Indenture summarized in this subparagraph (d) shall be not more than 5% of the Revenues of the Obligated Group during the preceding Fiscal Year plus such additional amount as the Obligated Group Agent certifies in an Officer’s Certificate is (a) attributable to Short-Term Indebtedness incurred to offset a temporary delay in the receipt of funds due from third party payors and (b) in the minimum amount reasonably practicable taking into account such delay. For the purposes of this subparagraph, Short-Term Indebtedness shall not include overdrafts to banks to the extent there are immediately available funds of the Obligated Group sufficient to pay such overdrafts and such overdrafts are incurred and corrected in the normal course of business.
(e) Balloon Indebtedness if:
(i) (1) there is in effect at the time such Balloon Indebtedness is incurred a binding commitment (including without limitation letters or lines of credit or insurance) which may be subject only to commercially reasonable contingencies by a financial institution or bond insurer or surety generally regarded as responsible, to provide financing sufficient to pay the principal amount of such Balloon Indebtedness coming due in each consecutive 12-month period in which 25% or more of the original principal amount of such Balloon Indebtedness comes due; and
(2) the conditions set forth in subparagraph (a) above are met for any Fiscal Year in which 25% or more of the original principal amount of such Balloon Indebtedness comes due when it is assumed that (a) the portion of Balloon Indebtedness coming due in such Fiscal Year matures over 30 years from the date of issuance of the Balloon Indebtedness, bears interest on the
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unpaid balance at the Projected Rate and is payable on a level annual debt service basis over a period of no more than 30 years or (b) the portion of Balloon Indebtedness coming due in such Fiscal Year matures according to its actual principal amortization schedule, bears interest on the unpaid balance at the Projected Rate, but this subparagraph (b) shall only be used if the amortization of all Indebtedness of the Obligated Group Outstanding, when the Balloon Indebtedness debt service being calculated is calculated according to this subparagraph (b) varies no more than 10% per year or (c) the portion of Balloon Indebtedness coming due in such Fiscal Year bears interest at the Projected Rate and matures according to the principal amortization schedule set forth in the binding commitment described in subparagraph (1) above; or
(ii) the aggregate principal amount of all Balloon Indebtedness issued pursuant to this subparagraph (e) does not exceed 10% of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported upon by independent certified public accountants are available; or
(iii) the Balloon Indebtedness to be incurred has a remaining term of five years or greater beginning in such fiscal year, and
(1) the Member incurring such Balloon Indebtedness establishes in an Officer’s Certificate filed with the Master Trustee an amortization schedule for such Balloon Indebtedness, which amortization schedule shall provide for payments of principal and interest for each Fiscal Year that are not less than the amounts required to make any actual payments required to be made in such Fiscal Year by the terms of such Balloon Indebtedness;
(2) such Member agrees in such Officer’s Certificate to deposit each Fiscal Year with a bank or trust company (pursuant to an agreement between such Member and such bank or trust company) the amount of principal shown on such amortization schedule net of any amount of principal actually paid on such Balloon Indebtedness during such Fiscal Year (other than from amounts on deposit with such bank or trust company) which deposit shall be made prior to any such required actual payment during such Fiscal Year if the amounts so on deposit are intended to be the source of such actual payments; and
(3) the conditions described in subparagraph (a) above are met with respect to such Balloon Indebtedness when it is assumed that such Balloon Indebtedness is actually payable in accordance with such amortization schedule; or
(iv) (1) there is delivered to the Master Trustee an Officer’s Certificate to the effect that the Member incurring such Balloon Indebtedness intends to refinance the principal amount of such Balloon Indebtedness on or prior to the date on which it is due, and (2) the conditions set forth in subparagraphs (a) above or (c) above are met with respect to such Balloon Indebtedness when it is assumed that such Balloon Indebtedness bears interest at the Projected Rate and is payable on a level annual debt service basis over a period of no more than 30 years from the date of issuance of the Balloon Indebtedness, and (3) the report of the Consultant establishing the Projected Rate used to make the calculation pursuant to this clause (iv) contains a statement of the Consultant that it is reasonable to assume that 30 year installment obligations (or installment obligations of such lesser term as is used to calculate annual debt service in accordance with this clause (iv) of the Obligated Group or a Member thereof can be sold.
(f) Put Indebtedness if:
(i) the amount of such Put Indebtedness does not exceed 10% of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported upon by independent certified public accountants are available and the conditions set forth in subparagraph (a) above are met with respect to such Put Indebtedness when it is assumed that (a) such Put Indebtedness bears interest at the Projected Rate and is payable on a level annual debt service basis over a period of no more than 30 years commencing with the next succeeding Put Date, or (b) such Put Indebtedness bears interest at the Projected Rate and is payable according to
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its actual principal amortization schedule, but this clause (b) shall only be used if the debt service of all Indebtedness of the Obligated Group Outstanding, when the Put Indebtedness debt service being calculated is calculated according to this clause (b) varies no more than 10% per year or (c) such Put Indebtedness bears interest at the Projected Rate and is payable according to the principal amortization schedule set forth in a binding commitment of the type described in clause (f)(ii)(1) below; or
(ii) (1) there is in effect at any time such Put Indebtedness is incurred a binding commitment (including without limitation letters or lines of credit or insurance) which may be subject only to commercially reasonable contingencies by a financial institution or bond insurer or surety generally regarded as responsible, to provide financing sufficient to pay the principal amount of such Put Indebtedness on any Put Date, and (2) the conditions set forth in subparagraph (a) above are met for any Fiscal Year in which 25% or more of the original principal amount of such Put Indebtedness may come due when it is assumed that (a) the portion of Put Indebtedness which may come due in such Fiscal Year matures over 30 years from the date of issuance of the Put Indebtedness, bears interest on the unpaid balance at the Projected Rate and is payable on a level annual debt service basis over a period of no more than 30 years or (b) the portion of Put Indebtedness which may come due in such Fiscal Year matures according to its actual principal amortization schedule and bears interest on the unpaid balance at the Projected Rate, but this clause (b) shall only be used if the amortization of all Indebtedness of the Obligated Group Outstanding, when the Put Indebtedness debt service being calculated is calculated according to this clause (b), varies no more than 10% per year or (c) such Put Indebtedness bears interest at the Projected Rate and is payable according to the principal amortization schedule set forth in a binding commitment of the type described in clause (1) above; or
(iii) the aggregate principal amount of all Put Indebtedness issued pursuant to this subparagraph (f) does not exceed 10% of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported on by independent certified public accountants are available; or
(iv) (1) there is delivered to the Master Trustee an Officer’s Certificate to the effect that the Member incurring such Put Indebtedness intends to refinance the principal amount of such Put Indebtedness on or prior to the next succeeding Put Date and (2) the conditions set forth in subparagraphs (a) or (c) above are met with respect to such Put Indebtedness when it is assumed that such Put Indebtedness bears interest at the Projected Rate and is payable on a level annual debt service basis over a period of no more than 30 years from the date of issuance of the Put Indebtedness; and (3) the report of the Consultant establishing the Projected Rate used to make the calculation pursuant to this clause (iv) contains a statement of the Consultant that it is reasonable to assume that 30 year installment obligations (or installment obligations of such lesser term as is used to calculate annual debt service in accordance with this clause (iv) of the Obligated Group or a Member thereof can be sold.
(g) Liabilities for contributions to self-insurance or shared or pooled-risk insurance programs required or permitted to be maintained under the Master Indenture.
(h) Indebtedness consisting of accounts payable incurred in the ordinary course of business or other Indebtedness not incurred or assumed primarily to assure the repayment of money borrowed or credit extended which Indebtedness is incurred in the ordinary course of business, including but not limited to deferred obligations for the refund or repayment of Entrance Fees.
(i) Indebtedness incurred in connection with a sale or pledge of accounts receivable with or without recourse by any Member consisting of an obligation to repurchase all or a portion of such accounts receivable upon certain conditions, provided that the principal amount of such Indebtedness permitted by the Master Indenture shall not exceed the aggregate sale price of such accounts receivable received by such Member.
(j) Non-Recourse Indebtedness, without limit.
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(k) Extendable Indebtedness if the conditions set forth in subparagraph (a) above are met when it is assumed that (i) such Indebtedness bears interest at the Projected Rate and is amortized on a level debt service basis over a term equal to the remaining term of the Extendable Indebtedness or (ii) such Indebtedness bears interest at the Projected Rate and is payable in accordance with its actual amortization schedule, but only if the debt service on all Indebtedness of the Obligated Group Outstanding when the Extendable Indebtedness debt service being calculated is calculated in accordance with this clause (ii), varies by no more than 10% per year.
(l) Subordinated Indebtedness, without limit.
(m) Commitment Indebtedness, without limit.
(n) Indebtedness the principal amount of which at the time incurred, together with the aggregate principal amount of all other Indebtedness then Outstanding which was issued pursuant to the provisions of this subparagraph (n) and which has not been subsequently reclassified as having been issued under subparagraphs (a), (d), (e) or (f) above, does not exceed 10% of the Revenues of the Obligated Group for the latest preceding Fiscal Year for which financial statements reported upon by independent certified public accountants are available provided, however, that the total amount of all Indebtedness Outstanding which was issued pursuant to the provisions of subparagraphs (d), (e)(ii), (f)(iii) and this subparagraph (n) shall not exceed 15% of the Revenues of the Obligated Group for the most recent Fiscal Year for which financial statements reported on by independent certified public accountants are available.
It is agreed and understood by the parties to the Master Indenture that various types of Indebtedness may be incurred under any of the above-referenced subparagraphs with respect to which the tests set forth in such subparagraph are met and need not be incurred under only a subparagraph specifically referring to such type of Indebtedness (e.g., Balloon Indebtedness and Put Indebtedness may be incurred under subparagraph (a) above if the tests therein are satisfied).
Each Member covenants that Indebtedness of the type permitted to be incurred under subparagraph (i) above will not be allowed to become overdue for a period in excess of that which is ordinary for similar institutions without being contested in good faith and by appropriate proceedings.
Each Member covenants that prior to, or as soon as reasonably practicable after, the incurrence of Indebtedness by such Member for money borrowed or credit extended, or the equivalent thereof, after the date of issuance of the Initial Obligations, it will deliver to the Master Trustee an Officer’s Certificate which identifies the Indebtedness incurred, identifies the subparagraph described under this caption pursuant to which such Indebtedness was incurred, certifies compliance with the provisions of such subparagraph and attaches a copy of the instrument evidencing such Indebtedness; provided, however, that this requirement shall not apply to Indebtedness incurred pursuant to subparagraphs (g) or (h) above. The Master Trustee shall have no obligation to determine whether or not such Indebtedness complies with the restrictions set forth in the applicable subsection and is fully protected in relying on the certification of the Member as to such compliance.
Each Member agrees that, prior to incurring Additional Indebtedness for money borrowed from or credit extended by entities other than Related Issuers, sellers of real or personal property for purchase money debt, lessors of such property or banks or other institutional lenders, it will provide the Master Trustee with an opinion of Independent Counsel not objected to by the Master Trustee to the effect that, to such Counsel’s knowledge, such Member has complied in all material respects with all applicable state and federal laws regarding the sale of securities in connection with the incurrence of such Additional Indebtedness (including the issuance of any securities or other evidences of indebtedness in connection therewith) and such Counsel has no reason to believe that a right of rescission under such laws exists on the part of the entities to which such Additional Indebtedness is to be incurred.
The provisions of the Master Indenture notwithstanding, the Members of the Obligated Group may not incur any Additional Indebtedness the proceeds of which will be used for the acquisition of real Property or the construction of any Facilities unless the right, title and interest in any assets to be financed or refinanced with the proceeds of such Additional Indebtedness and the real estate upon which such assets will be located have been mortgaged and assigned to the Master Trustee pursuant to a mortgage or deed of trust in substantially the form of the Mortgage and such assets and real estate are not subject to any other Lien except for Permitted Encumbrances.
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Calculation of Debt Service and Debt Service Coverage
The various calculations of the amount of Indebtedness of a Person, the amortization schedule of such Indebtedness and the debt service payable with respect to such Indebtedness required under certain provisions of the Master Indenture shall be made in a manner consistent with that described under the caption "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness" above and under this caption. In the case of Balloon or Put Indebtedness issued pursuant to subparagraph (e) or (f) under the caption "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness," unless such Indebtedness is reclassified pursuant to the provisions summarized under this caption as having been issued pursuant to another subparagraph under the caption "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness," the amortization schedule of such Indebtedness and the debt service payable with respect to such Indebtedness for future periods shall be calculated on the assumption that such Indebtedness is being issued simultaneously with such calculation. With respect to Put Indebtedness, if the option of the holder to require that such Indebtedness be paid, purchased or redeemed prior to its stated maturity date, or if the requirement that such Indebtedness be paid, purchased or redeemed prior to its stated maturity date (other than at the option of such holder and other than pursuant to any mandatory sinking fund or any similar fund), has expired or lapsed as of the date of calculation, such Put Indebtedness shall be deemed payable in accordance with its terms.
In determining the amount of debt service payable on Indebtedness in the course of the various calculations required under certain provisions of the Master Indenture, if the terms of the Indebtedness being considered are such that interest thereon for any future period of time is expressed to be calculated at a varying rate per annum, a formula rate or a fixed rate per annum based on a varying index, then for the purpose of making such determination of debt service, interest on such Indebtedness for such period (the "Determination Period") shall be computed by assuming that the rate of interest applicable to the Determination Period is equal to the average of the rate of interest (calculated in the manner in which the rate of interest for the Determination Period is expressed to be calculated) which was in effect on the last date of each of the twelve full calendar months immediately preceding the month in which such calculation is made; provided that if the index or other basis for calculating such interest was not in existence for at least twelve full calendar months next preceding the date of calculation, the rate of interest for such period shall be deemed to be the average rate of interest that was in effect on the last day of each full calendar month next preceding the date of calculation; and if the average rate of interest borne by such Indebtedness for such shorter period cannot be calculated, the rate of interest for such period shall be deemed to be the Projected Rate. No debt service shall be deemed payable upon the exercise by a holder of Extendable Indebtedness of the option to tender such Indebtedness for payment.
Obligations issued to secure Indebtedness permitted to be incurred under the provisions of the Master Indenture summarized above under the caption "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness" shall not be treated as Additional Indebtedness in a manner which would require such Indebtedness to be included more than one time in the calculations performed under the Master Indenture.
No debt service shall be deemed payable with respect to Commitment Indebtedness until such time as funding occurs under the commitment which gave rise to such Commitment Indebtedness. From and after such funding, the amount of such debt service shall be calculated in accordance with the actual amount required to be repaid on such Commitment Indebtedness and the actual interest rate and amortization schedule applicable thereto. No Additional Indebtedness shall be deemed to arise when any funding occurs under any such commitment or any such commitment is renewed upon terms which provide for substantially the same terms of repayment of amounts disbursed pursuant to such commitment as obtained prior to such renewal. In addition, no Additional Indebtedness shall be deemed to arise when Indebtedness which bears interest at a variable rate of interest is converted to Indebtedness which bears interest at a fixed rate or the method of computing the variable rate on such Indebtedness is changed or the terms upon which Indebtedness, if Put Indebtedness, may be or is required to be tendered for purchase are changed, if such conversion or change is in accordance with the provisions applicable to such variable rate Indebtedness or Put Indebtedness in effect immediately prior to such conversion or change.
Balloon Indebtedness incurred as provided under subparagraph (e) or (n) under the caption "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness," unless reclassified pursuant to the provisions summarized under this caption, shall be deemed to be payable in accordance with the assumptions set forth in subparagraph (e)(i)(2) under the caption "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness." Put Indebtedness incurred as provided under subparagraph (f) or (n) under the caption "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness," unless reclassified pursuant to the provisions summarized under this caption, shall be deemed to be payable in accordance
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with the assumptions set forth in subparagraph (f)(i) of "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness."
For the purpose of determining whether any particular Guaranty may be incurred, it shall be assumed that 100% of the Indebtedness guaranteed is Funded Indebtedness of the guarantor under such Guaranty. For the purpose of calculating any historical Debt Service Requirements, the guarantor’s Debt Service Requirements under a Guaranty shall be deemed to be the actual amount paid on such Guaranty by the guarantor. For any other purpose, a guarantor shall be considered liable only for 20% of the annual debt service requirement on the Indebtedness guaranteed; provided, however, if the guarantor has been required by reason of its guaranty to make a payment in respect of such Indebtedness within the immediately preceding 24 months, the guarantor shall be considered liable for 100% of the annual debt service requirement on the Indebtedness guaranteed.
For purposes of the various calculations required under the Master Indenture for Capitalized Leases, the Capitalized Rentals under a Capitalized Lease at the time of such calculation shall be deemed to be the principal payable thereon.
Each Member may elect to have Indebtedness issued pursuant to one provision summarized under the caption "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness," including without limitation subparagraph (n), reclassified as having been incurred under another provision under "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness" by demonstrating compliance with such other provision on the assumption that such Indebtedness is being reissued on the date of delivery of the materials required to be delivered under such other provision including the certification of any applicable Projected Rate. From and after such demonstration, such Indebtedness shall be deemed to have been incurred under the provision with respect to which such compliance has been demonstrated until any subsequent reclassification of such Indebtedness.
Anything in the Master Indenture to the contrary notwithstanding, any portion of any Indebtedness of any Member for which an Interest Rate Agreement has been obtained by such Member shall be deemed to bear interest for the period of time that such Interest Rate Agreement is in effect at a net rate which takes into account the interest payments made by such Member on such Indebtedness and the payments made or received by such Member on such Interest Rate Agreement; provided that the long-term credit rating of the provider of such Interest Rate Agreement (or any guarantor thereof) is in one of the four highest rating categories of any Rating Agency (without regard to any refinements of gradation of rating category by numerical modifier or otherwise). For the purposes of determining the Debt Service Requirements for any future period of time with respect to any Indebtedness subject to an Interest Rate Agreement satisfying the requirements of the preceding sentence (i) if the Member is required to pay a fixed rate of interest under the Interest Rate Agreement, such Indebtedness shall be deemed to bear interest at such fixed rates and (ii) if the Member is required to pay interest at a variable rate under the Interest Rate Agreement, Debt Service Requirements on such Indebtedness shall be calculated in accordance with the second paragraph under this caption. In addition, so long as any Indebtedness is deemed to bear interest at a rate taking into account an Interest Rate Agreement, any payments made by a Member on such Interest Rate Agreement shall be excluded from Expenses and any payments received by a Member on such Interest Rate Agreement shall be excluded from Revenues, in each case, for all purposes of the Master Indenture.
Sale, Lease or Other Disposition of Property
Each Member agrees that it will not, in any consecutive 12-month period, sell, lease or otherwise dispose (including without limitation any involuntary disposition) of Property (either real or personal property, including cash and investments) unless the Obligated Group Agent delivers an Officer’s Certificate stating that the Property has been transferred in one or more of the following transfers or other dispositions of Property; provided, however, in the case of transfers or other dispositions pursuant to (h) below, an Officer’s Certificate is not required:
(a) In return for other Property of equal or greater value and usefulness;
(b) In the ordinary course of business upon fair and reasonable terms;
(c) To any Person, if prior to such sale, lease or other disposition there is delivered to the Master Trustee an Officer’s Certificate of a Member stating that, in the judgment of the signer, such Property has, or within the next succeeding 24 calendar months is reasonably expected to, become inadequate, obsolete, worn out, unsuitable, unprofitable, undesirable or unnecessary and the sale, lease or
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other disposition thereof will not impair the structural soundness, efficiency or economic value of the remaining Property;
(d) From a Member to another Member; provided, however that none of the Land or any other Property financed with the proceeds of any Related Bonds shall be transferred by the Corporation to any other Member unless each Related Bond Trustee has received an Opinion of Bond Counsel to the effect that such transfer shall not adversely affect the validity of any Related Bonds or, with respect to any tax-exempt bonds, any exemption from federal income taxation to which such Related Bonds would otherwise be entitled;
(e) Upon fair and reasonable terms no less favorable to the Member than would be obtained in a comparable arm’s-length transaction;
(f) The Property sold, leased or otherwise disposed of does not, for any consecutive 12-month period, exceed 3% of the total assets (based on fair market value) of the Obligated Group (as shown on the most recent audited financial statements of the Obligated Group) and the Historical Debt Service Coverage Ratio was not less than 1.20:1 for the last Fiscal Year for which audited financial statements have been prepared, provided that in calculating the Historical Debt Service Coverage Ratio for purposes of this payment, the Income Available for Debt Service will be reduced by one year’s estimated interest earnings attributable the moneys to be used for the payment using, at the option of the Obligated Group Agent, (i) either (A) the current budgeted investment rate, as certified in an Officer’s Certificate, or (B) the actual average investment rate on the transferred funds, as certified in a report of a Consultant; and (ii) as of the end of the last fiscal quarter for which financial statements have been delivered as required under to the Master Trustee as required under the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Financial Statements and Related Matters," the Obligated Group had not less than 180 Days Cash on Hand after giving effect to the transaction. If the Historical Debt Service Coverage Ratio is not less than 1.20:1, the foregoing percentage of the total Book Value or Current Value may be increased as follows under the following conditions:
(i) to 5%, if Days Cash on Hand would not be less than 300 after the effect of such sale, lease or disposition of assets; or
(ii) to 7.5%, if Days Cash on Hand would not be less than 400 after the effect of such sale, lease or disposition of assets; or
(iii) to 10%, if Days Cash on Hand would not be less than 500 after the effect of such sale, lease or disposition of assets;
(g) To any Person, if such Property consists solely of assets which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use for payment on the Obligations;
(h) If the amount of such Property sold, leased or otherwise disposed of does not, for any consecutive twelve-month period, exceed 1% of the total Book Value (or Current Value if the Obligated Group Agent so elects) of all Property of the Obligated Group; and
(i) Pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Merger, Consolidation, Sale or Conveyance."
If the Property to be disposed in accordance with the provisions of the Master Indenture summarized under this caption is Mortgaged Property, the Master Trustee shall, upon the request of the Obligated Group Agent, release such Mortgaged Property from the Mortgage pursuant to the terms of the Mortgage. The foregoing notwithstanding, no Mortgaged Property shall be released while the Series 2004A LOC Obligation is Outstanding without the prior written consent of the holder of such Series 2004A LOC Obligation.
The Master Trustee has no obligation to monitor each Member's compliance with the provisions described under this caption.
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Liens on Property
The limitations in the Master Indenture summarized in subparagraph (e) under the caption "Summary of Certain Provisions of the Master Indenture– Covenants as to Corporate Existence, Maintenance of Properties, and Similar Matters; Right of Contest" notwithstanding, a Lien on Property of any Member securing Indebtedness or an Interest Rate Agreement shall be classified a Permitted Encumbrance (as provided in clause (b) of the definition thereof) and therefore be permitted if:
(1) such Lien secures Non-Recourse Indebtedness; or
(2) (a) after giving effect to such Lien and all other Liens classified as Permitted Encumbrances under this clause (2)(a) and clause (y) of the definition of Permitted Encumbrances, the Book Value or, at the option of the Obligated Group Agent, the Current Value of the Property of the Obligated Group which is Encumbered is not more than 10% of the value of all of the Property of the Obligated Group (calculated on the same basis as the value of the Encumbered Property) and (b) the Obligated Group Agent delivers an Officer’s Certificate stating that the conditions described in subparagraph (a) of the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness" are met for allowing the incurrence of one dollar of additional Funded Indebtedness.
Right to Consent
Each Member shall have the right to agree in any Related Bond Indenture, Related Loan Document or Supplemental Master Indenture pursuant to which an Obligation is issued that, so long as any Related Bonds remain outstanding under such Related Bond Indenture or such Obligation remains Outstanding, any or all provisions of the Master Indenture which provide for approval, consent, direction or appointment by the Master Trustee, provide that anything must be satisfactory or not objected to by the Master Trustee, allow the Master Trustee to request anything or contain similar provisions granting discretion to the Master Trustee shall be deemed to also require or allow, as the case may be, the approval, consent, appointment, satisfaction, acceptance, request or like exercise of discretion by the Related Bond Trustee, and that all items required to be delivered or addressed to the Master Trustee under the Master Indenture or under the Mortgage shall also be delivered or addressed to the Related Bond Trustee, unless waived thereby. If a Member enters into any such agreements in a Related Bond Indenture, Related Loan Document or Supplemental Master Indenture, such agreements shall be deemed to be included in the Master Indenture as if set forth in the Master Indenture.
Liquidity Covenant
The Obligated Group covenants that it will calculate the Days Cash on Hand of the Obligated Group as of June 30 of each Fiscal Year (each such date being a "Testing Date"), commencing June 30, 2015. The Obligated Group shall include such calculation in the Officer’s Certificate delivered pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture —Financial Statements and Related Matters."
If the amount of Days Cash on Hand as of any Testing Date is less than the Liquidity Requirement, the Obligated Group Agent shall, within 30 days after delivery of the Officer’s Certificate disclosing such deficiency, deliver an Officer’s Certificate approved by a resolution of the Governing Body of the Obligated Group Agent to the Master Trustee setting forth in reasonable detail the reasons for such deficiency and adopting a specific plan setting forth steps to be taken designed to raise the level of the Days Cash on Hand to the Liquidity Requirement for future periods.
If the Obligated Group has not raised the level of the Days Cash on Hand, to the Liquidity Requirement by the Testing Date immediately subsequent to the delivery of the Officer’s Certificate required in the preceding paragraph, the Obligated Group Agent shall, within 30 days after delivery of the Officer’s Certificate disclosing such deficiency, select a Consultant to make recommendations with respect to the rates, fees and charges of the Obligated Group and the Obligated Group’s methods of operation and other factors affecting its financial condition in order to increase the Days Cash on Hand, to the Liquidity Requirement for future periods. Such Consultant shall be approved and retained as set forth in the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Approval of Consultants." A copy of the Consultant’s report and recommendations, if any, shall be filed with each Member and each Required Information Recipient
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within 60 days after the date such Consultant is retained. Each Member of the Obligated Group shall follow each recommendation of the Consultant applicable to it to the extent feasible (as determined in the reasonable judgment of the Governing Body of the Member) and permitted by law.
Notwithstanding any other provision of the Master Indenture, failure of the Obligated Group to achieve the Liquidity Requirement for any Testing Date shall not constitute an event of default under the Master Indenture if the Obligated Group takes all action necessary to comply with the procedures set forth above for adopting a plan or retaining a Consultant and follows each recommendation contained in such plan or Consultant’s report to the extent feasible (as determined by the Governing Body of the Obligated Group Agent) and permitted by law.
The Master Trustee has no duty to monitor the Obligated Group's compliance with any such recommendations of the Consultant.
Approval of Consultants
(a) If at any time the Members of the Obligated Group are required to engage a Consultant under the provisions of the Master Indenture summarized under the captions "Summary of Certain Provisions of the Master Indenture – Rates and Charges," " – Financial Statements and Related Matters," " – Liquidity Covenant" or " – Lock-Box Provisions," such Consultant shall be engaged in the manner set forth below under this caption.
(b) Upon selecting a Consultant as required under the provisions of the Master Indenture, the Obligated Group Agent will notify the Master Trustee of such selection. The Master Trustee shall, as soon as practicable but in no case longer than five business days after receipt of notice, notify the holders of all Obligations Outstanding under the Master Indenture of such selection. Such notice shall be prepared, and provided to the Master Trustee, by the Obligated Group Agent and shall (i) include the name of the Consultant and a brief description of the Consultant, (ii) state the reason that the Consultant is being engaged including a description of the covenant(s) of the Master Indenture that require the Consultant to be engaged, and (iii) state that the holder of the Obligation will be deemed to have consented to the selection of the Consultant named in such notice unless such Obligation holder submits an objection to the selected Consultant in writing (in a manner acceptable to the Master Trustee) to the Master Trustee within 15 days of the date that the notice is sent to the Obligation holders. No later than two business days after the end of the 15-day objection period, which may be extended as provided below, the Master Trustee shall notify the Obligated Group of the number of objections. If more than two-thirds in aggregate principal amount of the holders of the Outstanding Obligations have been deemed to have consented to the selection of the Consultant, the Obligated Group Agent may engage the Consultant. If more than one-third in aggregate principal amount of the owners of the Obligations Outstanding have objected to the Consultant selected, the Obligated Group Agent shall select another Consultant which may be engaged upon compliance with the procedures of the Master Indenture summarized under this caption.
(c) When the Master Trustee notifies the holders of Obligations of such selection, the Master Trustee will also request any Related Bond Trustee send a notice containing the information required by subparagraph (b) above to the owners of all of the Outstanding Related Bonds. Such Related Bond Trustee shall, as the owner of an Obligation securing such Related Bonds, consent or object to the selection of the Consultant in accordance with the response of the owners of such Related Bonds. If more than two-thirds in aggregate principal amount of the Related Bonds have been deemed to have consented to the selection of the Consultant, the Bond Trustee shall approve the Consultant. If more than one-third in aggregate principal amount of the owners of the Related Bonds have objected to the Consultant selected, the Bond Trustee shall not approve the Consultant.
The 15-day notice period described in (b) above may be extended by the Master Trustee in order to permit each Related Bond Trustee to give the owners of the Related Bonds 15 days to respond to the notice given by the Related Bond Trustee. By acceptance of an Obligation securing any Related Bonds, the Related Bond Trustee agrees to comply with the provisions of the Master Indenture summarized under this caption.
(d) All Consultant reports required under the Master Indenture shall be prepared in accordance with the then-effective industry-appropriate standards.
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(e) If a Consultant is required to be engaged under two or more sections of the Master Indenture, the requirements of those sections may be (but need not be) satisfied through the engagement of a single Consultant under a single engagement in lieu of multiple engagements. Any requirement for a Consultant’s report under the Master Indenture may be satisfied by an update of a previous Consultant’s Report so long as the update when taken together with the previous report satisfies the requirements of the Master Indenture.
(f) A Consultant’s report under one section of the Master Indenture may satisfy a requirement for a Consultant’s report under another section of the Master Indenture but only if the nature of the Consultant and the substance of the report are sufficient to satisfy that requirement.
(g) the Obligated Group shall not be required to obtain a Consultant’s report that satisfies the requirements of a particular section of the Master Indenture more than one time in any six-month period.
Entrance Into the Obligated Group
As of the date of execution of the Master Indenture, the Initial Members are the only Members of the Obligated Group. Any other Person may become a Member of the Obligated Group if:
(a) Such Person shall execute and deliver to the Master Trustee a Supplemental Master Indenture which shall be executed by the Master Trustee and the Obligated Group Agent, containing (i) the agreement of such Person (A) to become a Member of the Obligated Group and thereby to become subject to compliance with all provisions of the Master Indenture and (B) unconditionally and irrevocably (subject to the right of such Person to cease its status as a Member of the Obligated Group pursuant to the terms and conditions summarized under the caption "Summary of Certain Provisions of the Master Indenture – Cessation of Status as a Member of the Obligated Group" below) to jointly and severally make payments upon each Obligation at the times and in the amounts provided in each such Obligation and (ii) representations and warranties by such Person substantially similar to those set forth in the Master Indenture other than those contained in the Master Indenture relating to tax-exempt status if such Person is not a Tax-Exempt Organization (but with such deviations as are acceptable to counsel);
(b) The Obligated Group Agent, by appropriate action of its Governing Body, shall have approved the admission of such Person to the Obligated Group, and each of the other Members shall have taken such action, if any, required to approve the admission of such Person to the Obligated Group;
(c) The Master Trustee shall have received (1) an Officer’s Certificate of the Obligated Group Agent which (A) certifies that (i) immediately upon such Person becoming a Member of the Obligated Group, the Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group, taking the Person becoming a Member into account, for the most recent Fiscal Year for which financial statements that have been reported upon by independent certified public accountants are available would be not less than 1.20:1 or that such Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group, taking the Person becoming a Member into account, is not less than the Historical Maximum Annual Debt Service Coverage Ratio of the Obligated Group was for such Fiscal Year without such Person becoming a Member of the Obligated Group and (ii) immediately upon such Person becoming a Member of the Obligated Group, taking the Person becoming a Member into account, the Obligated Group would be in compliance with the Liquidity Requirement of the Master Indenture described under the caption "Summary of Certain Provisions of the Master Indenture - Liquidity Covenant" based on the most recent audited financial statements required to be delivered pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Financial Statements and Related Matters" or that the number of Days Cash on Hand of the Obligated Group, taking the Person becoming a Member into account, is greater than what the number of Days Cash on Hand would be without such Person becoming a Member of the Obligated Group; and (B) certifies that immediately after such Person becoming a Member of the Obligated Group, no event of default exists under the Master Indenture and no event shall have occurred which with the passage of time or the giving of notice, or both, would become such an event of default as a result of the addition of such Member; (2) an opinion of Independent Counsel to the effect that (x) the instrument described in paragraph (a) above has been duly authorized, executed and delivered and constitutes a legal, valid and binding agreement of such Person, enforceable in accordance with its terms, subject to customary exceptions for bankruptcy, insolvency and other laws generally affecting enforcement of creditors’ rights and application of general principles of equity and to
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the exceptions set forth in the Master Indenture and (y) the addition of such Person to the Obligated Group will not adversely affect the status as a Tax-Exempt Organization of any Member which otherwise has such status; and (3) if all amounts due or to become due on all Related Bonds have not been paid to the holders thereof and provision for such payment has not been made in such manner as to have resulted in the defeasance of all Related Bond Indentures, an Opinion of Bond Counsel to the effect that under then existing law the addition of such Person to the Obligated Group, whether or not contemplated on the date of delivery of any such Related Bond, would not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of interest payable on such Bond otherwise entitled to such exemption; provided that in making the calculation called for by the provisions of the Master Indenture summarized in this subparagraph, (i) there shall be excluded from Revenues (a) any Revenues generated by Property of such Person transferred or otherwise disposed of by such Person since the beginning of the Fiscal Year during which such Person’s entry into the Obligated Group occurs and (b) any Revenues generated by Property of the new Member which at the time of such Member’s entry into the Obligated Group will be categorized as Excluded Property and (ii) there shall be excluded from Expenses (a) any Expenses related to Property of such Person transferred or otherwise disposed of by such Person since the beginning of the Fiscal Year during which such Person’s entry into the Obligated Group occurs and (b) any Expenses related to Property of the new Member which at the time of such Member’s entry into the Obligated Group will be categorized as Excluded Property; and
(d) (i) The Master Indenture is amended to include a description of the real property, if any, of the Person becoming a Member upon which the primary operations of such Person are conducted and a description of any Permitted Encumbrances of the type described in paragraph (w)(ii) of the definition thereof, (ii) the Master Indenture is amended to include a description of the Property of the Person becoming a Member which is to be considered Excluded Property (provided that such Property may be treated as Excluded Property only if such Property is real or tangible personal property and the primary operations of such Person are not conducted upon such real property), and (iii) the Master Indenture is amended to add such Person as a Member; and
(e) Each successor, assignee, surviving, resulting or transferee corporation of a Member must agree to become, and satisfy the above-described conditions to becoming, a Member of the Obligated Group prior to any such succession, assignment or other change in such Member’s corporate status.
Cessation of Status as a Member of the Obligated Group
Each Member covenants that it will not take any action, corporate or otherwise, which would cause it or any successor thereto into which it is merged or consolidated under the terms of the Master Indenture to cease to be a Member of the Obligated Group unless:
(a) the Member proposing to withdraw from the Obligated Group is not a party to any Related Loan Documents with respect to Related Bonds which remain Outstanding;
(b) prior to cessation of such status, there is delivered to the Master Trustee an Opinion of Bond Counsel to the effect that, under then existing law, the cessation by the Member of its status as a Member will not adversely affect the validity of any Related Bond or any exemption from federal or state income taxation of interest payable thereon to which such Bond would otherwise be entitled;
(c) prior to the cessation of such status, there is delivered to the Master Trustee an Officer’s Certificate of the Obligated Group Agent to the effect that: (A) (i) immediately after such cessation the Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group, taking such cessation into account, for the most recent Fiscal Year for which financial statements that have been reported upon by independent certified public accountants are available would be not less than 1.20:1 or that such Historical Pro Forma Debt Service Coverage Ratio of the Obligated Group, taking such cessation into account, is not less than the Historical Maximum Annual Debt Service Coverage Ratio of the Obligated Group was for such Fiscal Year prior to such cessation and (ii) immediately after such cessation, taking such cessation into account, the Obligated Group would be in compliance with the Liquidity Requirement of the Master Indenture described under the caption "Summary of Certain Provisions of the Master Indenture - Liquidity Covenant" based on the most recent audited financial statements delivered to the Master Trustee pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Financial Statements and Related Matters" or that the number of Days Cash on Hand
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of the Obligated Group, taking such cessation into account, is greater than what the number of Days Cash on Hand would be immediately prior to such cessation; and (B) immediately after such cessation, no event of default exists under the Master Indenture and no event shall have occurred which with the passage of time or the giving of notice, or both, would become such an event of default as a result of the withdrawal of such Member;
(d) prior to such cessation there is delivered to the Master Trustee an opinion of Independent Counsel to the effect that the cessation by such Member of its status as a Member will not adversely affect the status as a Tax-Exempt Organization of any Member which otherwise has such status; and
(e) prior to cessation of such status, the Obligated Group Agent consents in writing to the withdrawal by such Member.
Upon such cessation in accordance with the foregoing provisions, (i) the Master Indenture shall be amended to delete therefrom the description of any real property and of any Permitted Encumbrances of the type described in paragraphs (u) and (v) of the definition of Permitted Encumbrances of the Member which has ceased being a Member of the Obligated Group, (ii) the Master Indenture shall be amended to delete therefrom any Property of the Member which has ceased being a Member, (iii) the Master Indenture shall be amended to delete therefrom the name of such Person and (iv) the Master Trustee shall be authorized to release any mortgage held by the Master Trustee upon the Property of such Member which has ceased being a Member of the Obligated Group.
Events of Default
Each of the following events is declared an "event of default" under the Master Indenture:
(a) failure of the Obligated Group to pay any installment of interest or principal, or any premium, on any Obligation when the same shall become due and payable, whether at maturity, upon any date fixed for prepayment or by acceleration or otherwise; or
(b) failure of any Member to comply with, observe or perform any of the covenants, conditions, agreements or provisions of the Master Indenture, of a Supplemental Master Indenture or of an Obligation, and to remedy such default within 30 days after written notice thereof to such Member and the Obligated Group Agent from the Master Trustee or the holders of at least 25% in aggregate principal amount of the Outstanding Obligations, provided that, if in the judgment of the Master Trustee, such default cannot with due diligence and dispatch be wholly cured so that such failure no longer constitutes an "event of default" under the Master Indenture within 30 days but can be wholly cured, the failure of the Member to remedy such default within such 30-day period shall not constitute a default thereunder if the Member shall immediately upon receipt of such notice commence with due diligence and dispatch the curing of such default and, having so commenced the curing of such default shall thereafter prosecute and complete the same with due diligence and dispatch; or
(c) any representation or warranty made by any Member in the Master Indenture or in any statement or certificate furnished to the Master Trustee or the purchaser of any Obligation in connection with the sale of any Obligation or furnished by any Member pursuant to the Master Indenture proves untrue in any material respect as of the date of the issuance or making thereof and shall not be corrected or brought into compliance within 30 days after written notice thereof to the Obligated Group Agent by the Master Trustee or the holders of at least 25% in aggregate principal amount of the Outstanding Obligations; provided that, if in the judgment of the Master Trustee, such default cannot with due diligence and dispatch be wholly cured so that such failure no longer constitutes an "event of default" under the Master Indenture within 30 days but can be wholly cured, the failure of the Member to remedy such default within such 30-day period shall not constitute a default thereunder if the Member shall immediately upon receipt of such notice commence with due diligence and dispatch the curing of such default and, having so commenced the curing of such default, shall thereafter prosecute and complete the same with due diligence and dispatch; or
(d) default in the payment of the principal of, premium, if any, or interest on any Indebtedness for borrowed money of any Member, including without limitation any Indebtedness created by any Related Loan Document, as and when the same shall become due, or an event of default as defined in any mortgage, indenture, loan agreement or other instrument under or pursuant to which there was issued or incurred, or by which there is secured, any such Indebtedness (including any Obligation) of any
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Member, and which default in payment or event of default entitles the holder thereof to declare or, in the case of any Obligation, to request that the Master Trustee declare, such Indebtedness due and payable prior to the date on which it would otherwise become due and payable; provided, however, that if such Indebtedness is not evidenced by an Obligation or issued, incurred or secured by or under a Related Loan Document, a default in payment thereunder shall not constitute an "event of default" under the Master Indenture unless the unpaid principal amount of such Indebtedness, together with the unpaid principal amount of all other Indebtedness so in default, exceeds the greater of $250,000 or 1% of unrestricted net assets of the Obligated Group;
(e) any judgment, writ or warrant of attachment or of any similar process shall be entered or filed against any Member or against any Property of any Member and remains unvacated, unpaid, unbonded, unstayed or uncontested in good faith for a period of 90 days; provided, however, that none of the foregoing shall constitute an event of default unless the amount of such judgment, writ, warrant of attachment or similar process, together with the amount of all other such judgments, writs, warrants or similar processes so unvacated, unpaid, unbonded, unstayed or uncontested, exceeds $250,000 or 1% of the unrestricted net assets of the Obligated Group; or
(f) any Member admits insolvency or bankruptcy or its inability to pay its debts as they mature, or is generally not paying its debts as such debts become due, or makes an assignment for the benefit of creditors or applies for or consents to the appointment of a trustee, custodian or receiver for such Member, or for the major part of its Property; or
(g) a trustee, custodian or receiver is appointed for any Member or for the major part of its Property and is not discharged within 90 days after such appointment; or
(h) bankruptcy, dissolution, reorganization, arrangement, insolvency or liquidation proceedings, proceedings under Title 11 of the United States Code, as amended, or other proceedings for relief under any bankruptcy law or similar law for the relief of debtors are instituted by or against any Member (other than bankruptcy proceedings instituted by any Member against third parties), and if instituted against any Member are allowed against such Member or are consented to or are not dismissed, stayed or otherwise nullified within 90 days after such institution; or
(i) payment of any installment of interest or principal, or any premium, on any Related Bond shall not be made when the same shall become due and payable under the provisions of any Related Bond Indenture; or
(j) any event of default shall occur under the Mortgage or any mortgage executed pursuant to the last paragraph of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Permitted Additional Indebtedness."
Upon the occurrence and during the continuance of an event of default described in the provisions of the Master Indenture summarized under this caption, the Master Trustee shall give the Obligated Group Agent the Notice described in the first sentence of the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Lock-Box Provisions."
Acceleration
If an event of default has occurred and is continuing, the Master Trustee may, and if requested by either the holders of not less than 25% in aggregate principal amount of Outstanding Obligations or the holder of any Accelerable Instrument under which Accelerable Instrument an event of default exists, shall, by notice in writing delivered to the Obligated Group Agent, declare the entire principal amount of all Obligations then Outstanding under the Master Indenture and the interest accrued thereon immediately due and payable, and the entire principal and such interest shall thereupon become immediately due and payable, subject, however, to the provisions of the Master Indenture summarized under the captions "Summary of Certain Provisions of the Master Indenture – Direction of Proceedings by Holders," providing the holders of a majority in aggregate principal amount of the Obligations then Outstanding the right to rescind such acceleration, and "Summary of Certain Provisions of the Master Indenture – Waiver of Events of Default" with respect to waivers of events of default.
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Remedies; Rights of Obligation Holders
Upon the occurrence of any event of default, the Master Trustee may pursue any available remedy including a suit, action or proceeding at law or in equity to enforce the payment of the principal of, premium, if any, and interest on the Obligations Outstanding under the Master Indenture and any other sums due thereunder and may collect such sums in the manner provided by law out of the Property or the Excluded Property of any Member wherever situated, subject to the provisions of applicable State and federal law.
If an event of default shall have occurred, and if it shall have been requested so to do by either the holders of 25% or more in aggregate principal amount of Obligations Outstanding or the holder of an Accelerable Instrument who requested pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Acceleration" that the Master Trustee accelerate the Obligations and if it shall have been indemnified as provided in the Master Indenture, the Master Trustee shall be obligated to exercise such one or more of the rights and powers conferred by the provisions of the Master Indenture summarized under this caption as the Master Trustee shall deem most expedient in the interests of the holders of Obligations; provided, however, that the Master Trustee shall have the right to decline to comply with any such request if the Master Trustee shall be advised by counsel (who may be its own counsel) that the action so requested may not lawfully be taken or the Master Trustee in good faith shall determine that such action would be unjustly prejudicial to the holders of Obligations not parties to such request.
No remedy by the terms of the Master Indenture conferred upon or reserved to the Master Trustee (or to the holders of Obligations) is intended to be exclusive of any other remedy, but each and every such remedy shall be cumulative and shall be in addition to any other remedy given to the Master Trustee or to the holders of Obligations under the Master Indenture now or hereafter existing at law or in equity or by statute.
No delay or omission to exercise any right or power accruing upon any default or event of default shall impair any such right or power or shall be construed to be a waiver of any such default or event of default, or acquiescence therein; and every such right and power may be exercised from time to time and as often as may be deemed expedient.
No waiver of any default or event of default under the Master Indenture, whether by the Master Trustee or by the holders of Obligations, shall extend to or shall affect any subsequent default or event of default or shall impair any rights or remedies consequent thereon.
Direction of Proceedings by Holders
The holders of a majority in aggregate principal amount of the Obligations then Outstanding which have become due and payable in accordance with their terms or have been declared due and payable pursuant the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Acceleration" and have not been paid in full in the case of remedies exercised to enforce such payment, or the holders of not less than a majority in aggregate principal amount of the Obligations then Outstanding in the case of any other remedy, shall have the right, subject to the Master Trustee’s right to be indemnified to its satisfaction, at any time, by an instrument or instruments in writing executed and delivered to the Master Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Master Indenture and the Mortgage, or for the appointment of a receiver or any other proceedings under the Master Indenture, including a direction to the Master Trustee not to declare the acceleration of the payment of the principal amount of all Obligations Outstanding pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Acceleration" or to rescind any such acceleration; provided, that such direction shall not be otherwise than in accordance with the provisions of law and of the Master Indenture and that the Master Trustee shall have the right to decline to comply with any such request if the Master Trustee shall be advised by counsel (who may be its own counsel) that the action so directed may not lawfully be taken or the Master Trustee in good faith shall determine that such action would be unjustly prejudicial to the holders of the Obligations not parties to such direction. Pending such direction from the holders of not less than a majority in aggregate principal amount of the Obligations Outstanding, such direction may be given in the same manner and with the same effect by the holder of an Accelerable Instrument upon whose request pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – acceleration" the Master Trustee has accelerated the Obligations.
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The foregoing notwithstanding, the holders of not less than a majority in aggregate principal amount of the Obligations then Outstanding which are entitled to the exclusive benefit of certain security in addition to that intended to secure all or other Obligations shall have the right, subject to the Master Trustee’s right to be indemnified to its satisfaction, at any time, by an instrument or instruments in writing executed and delivered to the Master Trustee, to direct the method and place of conducting all proceedings to be taken in connection with the enforcement of the terms and conditions of the Master Indenture, the Supplemental Master Indenture or Indentures pursuant to which such Obligations were issued or so secured or any separate security document in order to realize on such security; provided, however, that such direction shall not be otherwise than in accordance with the provisions of law and of the Master Indenture and that the Master Trustee shall have the right to decline to comply with any such request if the Master Trustee shall be advised by counsel (who may be its own counsel) that the action so directed may not lawfully be taken.
Appointment of Receivers
Upon the occurrence of an event of default, and upon the filing of a suit or other commencement of judicial proceedings to enforce the rights of the Master Trustee and the holders of Obligations under the Master Indenture, the Master Trustee shall be entitled, as a matter of right, to the appointment of a receiver or receivers of the rights and properties pledged thereunder and of the revenues, issues, payments and profits thereof, pending such proceedings, with such powers as the court making such appointment shall confer.
Application of Moneys
All moneys received by the Master Trustee pursuant to any right given or action taken under the provisions of the Master Indenture (except moneys held for the payment of Obligations called for prepayment or redemption which have become due and payable) shall, after payment of the cost and expenses of the proceedings resulting in the collection of such moneys and of the fees of, expenses, liabilities and advances incurred or made by the Master Trustee, any Related Issuers and any Related Bond Trustees, be applied as follows:
(a) Unless the principal of all the Obligations shall have become or shall have been declared due and payable, all such moneys shall be applied:
First: To the payment to the persons entitled thereto of all installments of interest then due on the Obligations, in the order of the maturity of the installments of such interest, and, if the amount available shall not be sufficient to pay in full any particular installment, then to the payment ratably, according to the amounts due on such installment, to the persons entitled thereto, without any discrimination or privilege; and
Second: To the payment to the persons entitled thereto of the unpaid principal and premium, if any, on the Obligations which shall have become due (other than Obligations called for redemption or payment for payment of which moneys are held pursuant to the provisions of the Master Indenture), in the order of the scheduled dates of their payment, and, if the amount available shall not be sufficient to pay in full the Obligations due on any particular date, then to the payment ratably, according to the amount of principal and premium due on such date, to the persons entitled thereto without any discrimination or privilege; and
Third: To the payment to the persons entitled thereto of all unpaid principal and interest on Obligations, payment of which was extended by such persons as described in the Master Indenture.
(b) If the principal of all the Obligations shall have become due or shall have been declared due and payable, all such moneys shall be applied to the payment of the principal, premium, if any, and interest then due and unpaid upon the Obligations without preference or priority of principal, premium or interest over the others, or of any installment of interest over any other installment of interest, or of any Obligation over any other Obligation, ratably, according to the amounts due respectively for principal, premium, if any, and interest to the persons entitled thereto without any discrimination or privilege; provided that no amount shall be paid to any Obligation Holder who has extended the time for payment of either principal or interest as described in the Master Indenture until all other principal, premium, if any, and interest owing on Obligations has been paid; and
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(c) If the principal of all the Obligations shall have been declared due and payable, and if such declaration shall thereafter have been rescinded and annulled under the provisions of the Master Indenture, then, subject to the provisions of paragraph (b) above in the event that the principal of all the Obligations shall later become due or be declared due and payable, the moneys shall be applied in accordance with the provisions of paragraph (a) above.
Whenever moneys are to be applied by the Master Trustee pursuant to the provisions of the Master Indenture summarized under this caption, such moneys shall be applied by it at such times, and from time to time, as the Master Trustee shall determine in its sole discretion, having due regard for the amount of such moneys available for application and the likelihood of additional moneys becoming available for such application in the future. Whenever the Master Trustee shall apply such moneys, it shall fix the date (which shall be an interest payment date unless it shall deem another date more suitable) upon which such application is to be made and upon such date interest on the amounts of principal to be paid on such date shall cease to accrue. The Master Trustee shall give such notice as it may deem appropriate of the deposit with it of any such moneys and of the fixing of any such date, and shall not be required to make payment to the holder of any unpaid Obligation until such Obligation shall be presented to the Master Trustee for appropriate endorsement or for cancellation if fully paid.
Whenever all Obligations and interest thereon have been paid under the provisions of the Master Indenture summarized under this caption and all expenses and charges of the Master Trustee have been paid, any balance remaining shall be paid to the Person entitled to receive the same; if no other Person shall be entitled thereto, then the balance shall be paid to the Obligated Group Agent on behalf of the Members.
Remedies Vested in Master Trustee
All rights of action including the right to file proof of claims under the Master Indenture or under any of the Obligations may be enforced by the Master Trustee without the possession of any of the Obligations or the production thereof in any trial or other proceedings relating thereto and any such suit or proceeding instituted by the Master Trustee shall be brought in its name as Master Trustee without the necessity of joining as plaintiffs or defendants any holders of the Obligations, and any recovery of judgment shall be for the equal benefit of the holders of the Outstanding Obligations.
Rights and Remedies of Obligation Holders
No holder of any Obligation shall have any right to institute any suit, action or proceeding in equity or at law for the enforcement of the Master Indenture or for the execution of any trust thereof or for the appointment of a receiver or any other remedy thereunder, unless a default shall have become an event of default and (a) the holders of 25% or more in aggregate principal amount (i) of the Obligations which have become due and payable in accordance with their terms or have been declared due and payable pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Acceleration" and have not been paid in full in the case of powers exercised to enforce such payment or (ii) the Obligations then Outstanding in the case of any other exercise of power or (b) the holder of an Accelerable Instrument who requested or was entitled to request pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Acceleration" that the Master Trustee accelerate the Obligations, shall have made written request to the Master Trustee and shall have offered it reasonable opportunity either to proceed to exercise the powers granted or to institute such action, suit or proceeding in its own name, and unless also, in each case, such holders have offered to the Master Trustee indemnity as provided in the Master Indenture, and unless the Master Trustee shall thereafter fail or refuse to exercise the powers granted, or to institute such action, suit or proceeding in its own name; and such notification, request and offer of indemnity are declared in every case at the option of the Master Trustee to be conditions precedent to the execution of the powers and trusts of the Master Indenture and to any action or cause of action for the enforcement of the Master Indenture, or for the appointment of a receiver or for any other remedy thereunder; it being understood and intended that no one or more holders of the Obligations shall have any right in any manner whatsoever to affect, disturb or prejudice the lien of the Master Indenture by its, his or their action or to enforce any right thereunder except in the manner therein provided, and that all proceedings at law or in equity shall be instituted, had and maintained in the manner therein provided and for the equal benefit of the holders of all Obligations Outstanding. Nothing in the Master Indenture contained shall, however, affect or impair the right of any holder to enforce the payment of the principal of, premium, if any, and interest on any Obligation at and after the maturity thereof, or the obligation of the Members to pay the principal, premium, if any, and interest on each of the Obligations issued under the Master Indenture to the respective holders thereof at the time and place, from the source and in the manner in said Obligations expressed.
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Termination of Proceedings
In case the Master Trustee shall have proceeded to enforce any right under the Master Indenture by the appointment of a receiver, or otherwise, and such proceedings shall have been discontinued or abandoned for any reason, or shall have been determined adversely to the Master Trustee, then and in every case the Members and the Master Trustee shall, subject to any determination in such proceeding, be restored to their former positions and rights under the Master Indenture with respect to the Property pledged and assigned thereunder, and all rights, remedies and powers of the Master Trustee shall continue as if no such proceedings had been taken.
Waiver of Events of Default
If, at any time after the principal of all Obligations shall have been so declared due and payable, and before any judgment or decree for the payment of the moneys due shall have been obtained or entered as provided in the Master Indenture and before the acceleration of any Related Bond, any Member shall pay or shall deposit with the Master Trustee a sum sufficient to pay all matured installments of interest upon all such Obligations and the principal and premium, if any, of all such Obligations that shall have become due otherwise than by acceleration (with interest on overdue installments of interest and on such principal and premium, if any, at the rate borne by such Obligations to the date of such payment or deposit, to the extent permitted by law) and the expenses of the Master Trustee, and any and all events of default under the Master Indenture, other than the nonpayment of principal of and accrued interest on such Obligations that shall have become due by acceleration, shall have been remedied, then and in every such case the holders of not less than a majority in aggregate principal amount of all Obligations then Outstanding, by written notice to the Obligated Group Agent and to the Master Trustee, may waive all events of default and rescind and annul such declaration and its consequences; but no such waiver or rescission and annulment shall extend to or affect any subsequent event of default, or shall impair any right consequent thereon.
Members’ Rights of Possession and Use of Property
So long as each Member is in full compliance with the terms and provisions of the Master Indenture, each Member shall be suffered and permitted to possess, use and enjoy its Property and appurtenances thereto free of claims of the Master Trustee.
Related Bond Trustee or Bondholders Deemed to Be Obligation Holders
For the purposes of the Master Indenture, unless a Related Bond Trustee elects to the contrary or contrary provision is made in a Related Bond Indenture, each Related Bond Trustee shall be deemed the holder of the Obligation or Obligations pledged to secure the Related Bonds with respect to which such Related Bond Trustee is acting as trustee. If such a Related Bond Trustee so elects or the Related Bond Indenture so provides, the holders of each series of Related Bonds shall be deemed the holders of the Obligations to the extent of the principal amount of the Obligations to which their Bonds relate.
Lock-Box Provisions
Upon the occurrence and during the continuance of an event of default described in the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Events of Default," the Master Trustee shall give to the Obligated Group Agent a notice (the "Lock-Box Notice") substantially in the form set forth in an exhibit to the Master Indenture referring to the provisions of the Master Indenture summarized under this caption. Upon receipt of a Lock-Box Notice, (a) each Obligated Group Member will immediately commence depositing all Gross Revenues with the Master Trustee which it shall deposit in a Gross Revenues trust account to be established by it and will continue to do so on a daily basis as and when it receives or collects any moneys constituting Gross Revenues and (b) within seven days the Obligated Group Agent will (i) engage a Consultant (which Consultant shall be approved and retained as set forth in the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Approval of Consultants") to review the operating budget of the Obligated Group as required by the provisions of the Master Indenture summarized under this caption and notify the Master Trustee in writing of such engagement and (ii) submit to such Consultant and the Master Trustee a proposed operating budget for the Consultant’s approval or modification. The funds held by the Master Trustee in the Gross Revenues account shall be invested by it as directed in writing by the Obligated Group Agent. The proposed operating budget shall include on a month-by-month basis all operating expenses to be paid by each Obligated Group Member. Upon review of the proposed budget, the Consultant will notify the Obligated Group Agent and the Master Trustee whether such budget is
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approved as submitted or of any modifications the Consultant will impose. A copy of the budget, as approved or modified (the "Lock-Box Budget"), will be sent to the Obligated Group Agent and the Master Trustee. In the event that the Obligated Group Agent fails to submit a proposed operating budget to the Consultant and the Master Trustee, the Consultant will modify the operating budget last submitted to the Consultant as it deems appropriate under the then existing circumstances and such modified operating budget will constitute the Lock-Box Budget. The Lock-Box Budget may be amended and modified by the Consultant at any time and from time to time as the Consultant in its discretion determines is necessary or appropriate under the then existing circumstances. A copy of any amendment or modification to the Lock-Box Budget will be sent by the Consultant to the Obligated Group Agent and the Master Trustee. The Master Trustee agrees that, upon receipt of a notice signed by the Obligated Group Agent requesting funds in accordance with the Lock-Box Budget and approved by the Consultant substantially in the form set forth in an exhibit to the Master Indenture, it will make such disbursements requested (from amounts deposited with it by each Obligated Group Member as provided above) not more frequently than on a monthly basis to the Obligated Group Agent to pay operating expenses.
If at any time following a Lock-Box Notice all amounts due to the Master Trustee have been paid in full, the Master Trustee will notify the Obligated Group Agent in writing that the lock-box provisions of the Master Indenture summarized under this caption are suspended. Additionally, the Master Trustee may in its discretion at any time agree to suspend such lock-box provisions by so notifying the Obligated Group Agent in writing. Thereafter, unless and until any subsequent Lock-Box Notice is received by the Obligated Group Agent, Gross Revenues need not be deposited with the Master Trustee.
Resignation by the Master Trustee
The Master Trustee and any successor Master Trustee may at any time resign from the trusts created by the Master Indenture by giving thirty days’ written notice to the Obligated Group Agent and by registered or certified mail to each registered owner of Obligations then Outstanding and to each holder of Obligations as shown by the list of Obligation Holders required by the Master Indenture to be kept at the office of the Master Trustee. Such resignation shall take effect at the end of such thirty days or when a successor Master Trustee has been appointed and has assumed the trusts created by the Master Indenture, whichever is later, or upon the earlier appointment of a successor Master Trustee by the Obligation Holders or by the Obligated Group. If a successor Master Trustee has not accepted its appointment within such 30-day period, the current Master Trustee may apply to a court of competent jurisdiction to appoint a successor Master Trustee to act until such time, if any, as a successor shall have so accepted its appointment. Such notice to the Obligated Group Agent may be served personally or sent by registered or certified mail.
Removal of the Master Trustee
The Master Trustee may be removed at any time, by an instrument or concurrent instruments in writing delivered to the Master Trustee and to the Obligated Group Agent, and signed by the registered owners of not less than a majority in aggregate principal amount of the Obligations then Outstanding. So long as no event of default has occurred and is continuing under the Master Indenture, and no event shall have occurred which, with the passage of time or the giving of notice or both would become such an event of default under the Master Indenture, the Master Trustee may be removed at any time by an instrument in writing signed by the Obligated Group Agent and delivered to the Master Trustee. The foregoing notwithstanding, the Master Trustee may not be removed by the Obligated Group Agent unless written notice of the delivery of such instrument or instruments signed by the Obligated Group Agent is mailed to the owners of all Obligations Outstanding under the Master Indenture, which notice indicates the Master Trustee will be removed and replaced by the successor trustee named in such notice, such removal and replacement to become effective on the 60th day next succeeding the date of such notice, unless the owners of not less than 10% in aggregate principal amount of such Obligations then Outstanding under the Master Indenture shall object in writing to such removal and replacement.
Appointment of Successor Master Trustee by the Obligation Holders; Temporary Master Trustee
In case the Master Trustee under the Master Indenture shall resign or be removed, or be dissolved, or shall be in the process of dissolution or liquidation, or otherwise becomes incapable of acting under the Master Indenture, or in case it shall be taken under the control of any public officer or officers, or of a receiver appointed by a court, a successor may be appointed by the Obligated Group, or by the owners of not less than a majority in aggregate principal amount of Obligations then Outstanding, by an instrument or concurrent instruments in writing signed by such owners, or by their attorneys in fact, duly authorized, with the approval of the Obligated Group so long as the
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Obligated Group is not in default, or potentially in default, under the Master Indenture. If a successor trustee shall not have been appointed within 30 days after notice of resignation by or removal of the Master Trustee, the Obligated Group or any holder of an Obligation may apply to any court of competent jurisdiction to appoint a successor to act until such time, if any, as a successor shall have been appointed as above provided. The successor so appointed by such court shall immediately and without further act be superseded by any successor appointed as above provided. Every such successor Master Trustee appointed pursuant to the provisions of the Master Indenture summarized under this caption shall be a trust company or bank in good standing under the law of the jurisdiction in which it was created and by which it exists, having corporate trust powers and subject to examination by federal or state authorities, and having a reported capital and surplus of not less than $50,000,000.
Supplemental Master Indentures and Amendments to the Mortgage Not Requiring Consent of Obligation Holders
Subject to the limitations set forth in the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Supplemental Master Indentures and Amendments of the Mortgage Requiring Consent of Obligation Holders," the Members and the Master Trustee may, but without the consent of, or notice to, any of the Obligation Holders amend or supplement the Master Indenture or the Mortgage for any one or more of the following purposes:
(a) To cure any ambiguity or defective provision in or omission from the Master Indenture in such manner as is not inconsistent with and does not impair the security of the Master Indenture or the Mortgage or adversely affect the holder of any Obligation;
(b) To grant to or confer upon the Master Trustee for the benefit of the Obligation Holders any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon the Obligation Holders and the Master Trustee, or either of them, to add to the covenants of the Members for the benefit of the Obligation Holders or to surrender any right or power conferred under the Master Indenture or under the Mortgage upon any Member;
(c) To assign and pledge under the Master Indenture or the Mortgage any additional revenues, properties or collateral;
(d) To evidence the succession of another corporation to the agreements of a Member or the Master Trustee, or the successor of any thereof under the Master Indenture;
(e) To permit the qualification of the Master Indenture under the Trust Indenture Act of 1939, as then amended, or under any similar federal statute hereafter in effect or to permit the qualification of any Obligations for sale under the securities laws of any state of the United States;
(f) To provide for the refunding or advance refunding of any Obligation;
(g) To provide for the issuance of Additional Obligations;
(h) To reflect the addition to or withdrawal of a Member from the Obligated Group;
(i) To provide for the issuance of Obligations with original issue discount, provided such issuance would not materially adversely affect the holders of Outstanding Obligations;
(j) To permit an Obligation to be secured by security which is not extended to all Obligation Holders;
(k) To permit the issuance of Obligations which are not in the form of a promissory note;
(l) Provide for the release in accordance with the provisions of the Master Indenture and the Mortgage of any Property subject to the lien of the Mortgage; and
(m) To make any other change which, in the opinion of the Master Trustee, does not materially adversely affect the holders of any of the Obligations and, in the opinion of each Related Bond Trustee, does not materially adversely affect the holders of the Related Bonds with respect to which it acts
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as trustee, including without limitation any modification, amendment or supplement to the Master Indenture or any indenture supplemental to the Master Indenture or the Mortgage or any amendment thereto in such a manner as to establish or maintain exemption of interest on any Related Bonds under a Related Bond Indenture from federal income taxation under applicable provisions of the Code.
(n) Any Supplemental Master Indenture providing for the issuance of Additional Obligations shall set forth the date thereof, the date or dates upon which principal of, premium, if any, and interest on such Obligations shall be payable, the other terms and conditions of such Obligations, the form of such Obligations and the conditions precedent to the delivery of such Obligations which shall include, among other things:
(i) delivery to the Master Trustee of all materials required to be delivered as a condition precedent to the incurrence of the Additional Indebtedness evidenced by such Obligations;
(ii) delivery to the Master Trustee of an opinion of Independent Counsel to the effect that all requirements and conditions to the issuance of such Obligations, if any, set forth in the Master Indenture and in the Supplemental Master Indenture have been complied with and satisfied; and
(iii) delivery to the Master Trustee of an opinion of Independent Counsel to the effect that registration of such Obligations under the Securities Act of 1933, as amended, is not required, or, if such registration is required, that the Obligated Group has complied with all applicable provisions of said Act.
If at any time the Obligated Group Agent shall request the Master Trustee to enter into any Supplemental Master Indenture pursuant to subparagraph (l) above, the Master Trustee shall cause notice of the proposed execution of such Supplemental Master Indenture to be given to each Rating Agency then maintaining a rating on any Obligations or Related Bonds, in the manner provided in the Master Indenture at least 15 days prior to the execution of such Supplemental Master Indenture, which notice shall include a copy of the proposed Supplemental Master Indenture.
Supplemental Master Indentures and Amendment of the Mortgage Requiring Consent of Obligation Holders
In addition to Supplemental Master Indentures covered by the provisions of the Master Indenture summarized under the previous caption and subject to the terms and provisions of the Master Indenture summarized under this caption, and not otherwise the holders of not less than a majority in aggregate principal amount of the Obligations which are Outstanding under the Master Indenture at the time of the execution of such Supplemental Master Indenture or amendment to the Mortgage or, in case less than all of the several series of Obligations Outstanding are affected thereby, the holders of not less than a majority in aggregate principal amount of the Obligations of the series affected thereby which are Outstanding under the Master Indenture at the time of the execution of such Supplemental Master Indenture or amendment to the Mortgage, shall have the right, from time to time, anything contained in the Master Indenture or in the Mortgage to the contrary notwithstanding, to consent to and approve the execution by the Members and the Master Trustee of such Supplemental Master Indentures as shall be deemed necessary and desirable by the Members for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Master Indenture or in any Supplemental Master Indenture; provided, however, that nothing contained in the provisions of the Master Indenture summarized under this caption or under the provisions of the Master Indenture summarized under the previous caption shall permit, or be construed as permitting, (a) an extension of the stated maturity or reduction in the principal amount of or reduction in the rate or extension of the time of paying of interest on or reduction of any premium payable on the redemption of, any Obligation, without the consent of the holder of such Obligation, (b) a reduction in the aforesaid aggregate principal amount of Obligations the holders of which are required to consent to any such Supplemental Master Indenture or amendment to the Mortgage or any such amending or supplementing instruments, without the consent of the holders of all the Obligations at the time Outstanding which would be affected by the action to be taken, (c) modification of the rights, duties or immunities of the Master Trustee, without the written consent of the Master Trustee or (d) permit the creation of any Lien ranking prior to the lien of the Master Indenture with respect to any of the Trust Estate or terminate the lien of the Master Indenture or the Mortgage on any Property at any time subject thereto (other than as may otherwise be provided the Master Indenture or the Mortgage; provided further that no such modification shall be made if it materially adversely affects the
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provisions of the Master Indenture concerning the conditions precedent to a Person becoming a Member, the conditions precedent to cessation of status as a Member, the maintenance of the Obligated Group’s Property free and clear of Liens other than Permitted Encumbrances, the definition of Permitted Encumbrances or transactions with or transfers to Members and other entities without the written approval or consent of the holders of not less than a majority in aggregate principal amount of the Obligations of each series affected thereby.
If at any time the Obligated Group Agent shall request the Master Trustee to enter into any such Supplemental Master Indenture for any of the purposes of the Master Indenture summarized under this caption, the Master Trustee shall, upon being satisfactorily indemnified with respect to expenses, cause notice of the proposed execution of such Supplemental Master Indenture to be mailed by first class mail postage prepaid to each holder of an Obligation or, in case less than all of the series of Obligations are affected thereby, of an Obligation of the series affected thereby. Such notice shall be prepared by or on behalf of the Corporation and shall briefly set forth the nature of the proposed Supplemental Master Indenture and shall state that copies thereof are on file at the designated corporate trust office of the Master Trustee for inspection by all Obligation Holders. The Master Trustee shall not, however, be subject to any liability to any Obligation Holder by reason of its failure to mail such notice, and any such failure shall not affect the validity of such Supplemental Master Indenture when consented to and approved as provided in the provisions of the Master Indenture summarized under this caption. If the holders of not less than a majority in aggregate principal amount of the Obligations or the Obligations of each series affected thereby, as the case may be, which are Outstanding under the Master Indenture at the time of the execution of any such Supplemental Master Indenture shall have consented to and approved the execution thereof as provided in the Master Indenture, no holder of any Obligation shall have any right to object to any of the terms and provisions contained therein, or the operation thereof, or in any manner to question the propriety of the execution thereof, or to enjoin or restrain the Master Trustee or the Members from executing the same or from taking any action pursuant to the provisions thereof. Upon the execution of any Supplemental Master Indenture as permitted and provided by provisions of the Master Indenture summarized under this caption, the Master Indenture shall be and be deemed to be modified and amended in accordance therewith.
For the purpose of obtaining the foregoing consents, the determination of who is deemed the holder of an Obligation held by a Related Bond Trustee shall be made in the manner provided in the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture –Related Bond Trustee or Bondholders Deemed to be Obligation Holders."
Defeasance
If the Members shall pay or provide for the payment of the entire indebtedness on all Obligations (including, for the purposes of the provisions of the Master Indenture summarized under this caption, any Obligations owned by a Member) Outstanding in any one or more of the following ways:
(a) by paying or causing to be paid the principal of (including redemption premium, if any) and interest on all Obligations Outstanding, as and when the same become due and payable;
(b) by depositing with the Master Trustee, in trust, at or before maturity, moneys in an amount as the Master Trustee shall determine sufficient to pay or redeem (when redeemable) all Obligations Outstanding (including the payment of premium, if any, and interest payable on such Obligations to the maturity or redemption date thereof), provided that such moneys, if invested, shall be invested at the written direction of the Obligated Group Agent in Escrow Obligations, in an amount, without consideration of any income or increment to accrue thereon, sufficient to pay or redeem (when redeemable) and discharge the indebtedness on all Obligations Outstanding at or before their respective maturity dates; it being understood that the investment income on such Escrow Obligations may be used at the direction of the Obligated Group Agent for any other purpose permitted by law;
(c) by delivering to the Master Trustee, for cancellation by it, all Obligations Outstanding; or
(d) by depositing with the Master Trustee, in trust, before maturity, Escrow Obligations in such amount as the Master Trustee shall determine (which determination may be based upon a report of a firm of independent certified public accountants furnished to it) will, together with the income or increment to accrue thereon, without consideration of any reinvestment thereof, be fully sufficient to pay or redeem (when redeemable) and discharge the indebtedness on all Obligations Outstanding at or before their respective maturity dates;
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and if the Obligated Group shall also pay or cause to be paid all other sums payable under the Master Indenture by the Obligated Group and, if any such Obligations are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given in accordance with the requirements of the Master Indenture or provisions satisfactory to the Master Trustee shall have been made for the giving of such notice, then and in that case (but subject to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Satisfaction of Related Bonds") the Master Indenture and the estate and rights granted thereunder shall cease, determine, and become null and void, and thereupon the Master Trustee shall, upon Written Request of the Obligated Group Agent, and upon receipt by the Master Trustee of an Officer’s Certificate from the Obligated Group Agent and an opinion of Independent Counsel, each stating that in the opinion of the signers all conditions precedent to the satisfaction and discharge of the Master Indenture have been complied with, forthwith execute proper instruments acknowledging satisfaction of and discharging the Master Indenture and the lien thereof. The satisfaction and discharge of the Master Indenture shall be without prejudice to the rights of the Master Trustee to charge and be reimbursed by the Obligated Group for any expenditures which it may thereafter incur in connection with the Master Indenture. The foregoing notwithstanding, the liability of the Obligated Group in respect of the Obligations shall continue, but the holders thereof shall thereafter be entitled to payment only out of the moneys or Escrow Obligations deposited with the Master Trustee as aforesaid.
Any moneys, funds, securities, or other property remaining on deposit under the Master Indenture (other than said Escrow Obligations or other moneys deposited in trust as above provided) shall, upon the full satisfaction of the Master Indenture, forthwith be transferred, paid over and distributed to the Obligated Group.
The Obligated Group may at any time surrender to the Master Trustee for cancellation by it any Obligations previously authenticated and delivered which the Obligated Group may have acquired in any manner whatsoever, and such Obligations, upon such surrender and cancellation, shall be deemed to be paid and retired.
Provision for Payment of a Particular Series of Obligations or Portion Thereof
If the Obligated Group shall pay or provide for the payment of the entire indebtedness on all Obligations of a particular series or a portion of such a series (including, for the purpose of the provisions of the Master Indenture summarized under this caption, any such Obligations owned by a Member) in one of the following ways:
(a) by paying or causing to be paid the principal of (including redemption premium, if any) and interest on all Obligations of such series or portion thereof Outstanding, as and when the same shall become due and payable;
(b) by depositing with the Master Trustee, in trust, at or before maturity, moneys in an amount as the Master Trustee shall determine sufficient to pay or redeem (when redeemable) all Obligations of such series or portion thereof Outstanding (including the payment of premium, if any, and interest payable on such Obligations to the maturity or redemption date), provided that such moneys, if invested, shall be invested at the written direction of the Obligated Group Agent in Escrow Obligations in an amount, without consideration of any income or increment to accrue thereon, sufficient to pay or redeem (when redeemable) and discharge the indebtedness on all Obligations of such series or portion thereof Outstanding at or before their respective maturity dates; it being understood that the investment income on such Escrow Obligations may be used at the direction of the Obligated Group Agent for any other purpose permitted by law;
(c) by delivering to the Master Trustee, for cancellation by it, all Obligations of such series or portion thereof Outstanding; or
(d) by depositing with the Master Trustee, in trust, Escrow Obligations in such amount as the Master Trustee shall determine (which determination may be based upon a report of a firm of independent certified public accountants furnished to it) will, together with the income or increment to accrue thereon without consideration of any reinvestment thereof, be fully sufficient to pay or redeem (when redeemable) and discharge the indebtedness on all Obligations of such series or portion thereof at or before their respective maturity dates;
and if the Obligated Group shall also pay or cause to be paid all other sums payable under the Master Indenture by the Obligated Group with respect to such series of Obligations or portion thereof, and, if any such Obligations of such series or portion thereof are to be redeemed prior to the maturity thereof, notice of such redemption shall have
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been given in accordance with the requirements of the Master Indenture or provisions satisfactory to the Master Trustee shall have been made for the giving of such notice, then in that case (but subject to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture - Satisfaction of Related Bonds") such Obligations shall cease to be entitled to any lien, benefit or security under the Master Indenture. The liability of the Obligated Group in respect of such Obligations shall continue but the holders thereof shall thereafter be entitled to payment (to the exclusion of all other Obligation Holders) only out of the moneys or Escrow Obligations deposited with the Master Trustee as aforesaid.
Satisfaction of Related Bonds
The provisions of the Master Indenture summarized under the captions "Summary of Certain Provisions of the Master Indenture – Defeasance" and "– Provision for Payment of a Particular Series of Obligations or Portion Thereof" notwithstanding, any Obligation which secures a Related Bond (i) shall be deemed paid and shall cease to be entitled to the lien, benefit and security under the Master Indenture in the circumstances described in clause (b)(ii) of the definition of "Outstanding Obligations" and (ii) shall not be deemed paid and shall continue to be entitled to the lien, benefit and security under the Master Indenture unless and until such Related Bond shall cease to be entitled to any lien, benefit or security under the Related Bond Indenture pursuant to the provisions thereof.
SUMMARY OF CERTAIN PROVISIONS OF THE LEASE
Conveyance and Term
The Lease provides that the Corporation shall lease the Existing Facilities owned by the Corporation to the Issuer. The term of the Lease commences on December 1, 2014 and terminates on November 15, 2044, unless extended or sooner terminated in accordance with the terms of such Lease.
Rent
As rent for the Existing Facilities the Issuer shall pay the Lessee total rent of One Dollar ($1.00), plus other valuable consideration.
SUMMARY OF CERTAIN PROVISIONS OF THE SUBLEASE
Prior to the issuance of the Series 2014 Bonds, the Issuer and the Corporation will enter into the Sublease
with respect to the Existing Facilities of the Corporation, with certain exclusions. The term of the Sublease commences on December 1, 2014, and shall terminate on November 15, 2044, unless extended or terminated earlier pursuant to the provisions of such Sublease.
Payments to Bond Trustee
The Corporation covenants and agrees to make the following Basic Rent payments, on a joint and several basis, to the Bond Trustee for deposit into the following funds and accounts established by the Bond Indenture on the following dates:
(a) Interest Account Deposits: On or before the tenth day of each month, commencing January 10, 2015, through and including May 10, 2015, an amount equal to one-fifth (1/5) of the interest to become due on the Series 2014 Bonds on May 15, 2015, and on or before the tenth day of each month thereafter, an amount equal to one-sixth (1/6) of the interest to become due on such series of Series 2014 Bonds on the next succeeding interest payment date thereon; provided that no such payment need be made to the extent that moneys are on hand in the Interest Account for that purpose; and provided further that the Lessee shall receive a credit as determined by the Bond Trustee against such payment for amounts transferred by the Bond Trustee from the Debt Service Reserve Fund to the Interest Account pursuant to the Bond Indenture.
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(b) Principal Account Deposits: On or before the tenth day of each month commencing December 10, 2022, an amount equal to one-twelfth (1/12) of the principal coming due on the Series 2014 Bonds on the next succeeding principal payment date whether at maturity or by mandatory sinking fund redemption; provided that no such payment need be made to the extent that sufficient moneys are on hand in the Principal Account and available for that purpose; provided further that the Corporation shall receive a credit as determined by the Bond Trustee against such principal payment for amounts transferred by the Bond Trustee from the Debt Service Reserve Fund to the Principal Account pursuant to the Bond Indenture.
(c) Debt Service Reserve Fund Deposits: In the event the Debt Service Reserve Fund must be funded pursuant to the provisions of the Bond Indenture, the Corporation shall pay or cause to be paid to the Bond Trustee an amount equal to the Debt Service Reserve Fund Requirement for deposit into the Debt Service Reserve Fund, as required by the Bond Indenture.
The Corporation agrees to maintain funding of the Debt Service Reserve Fund as set forth in the provisions of the Bond Indenture summarized under the caption "Summary of Certain Provisions of the Bond Indenture – Funding of Debt Service Reserve Fund; Debt Service Reserve Fund Requirement."
The Corporation shall pay to the Bond Trustee or the Issuer, as the case may be, when due and payable, as Additional Rent, such of the following costs and expenses properly incurred by the Issuer as are not paid out of the proceeds of the Series 2014 Bonds:
(i) the reasonable fees and other costs incurred for services of such Independent engineers, architects, attorneys, and accountants as are employed to make examinations and/or render opinions and reports in connection with the issuance and delivery of the Series 2014 Bonds required under the Sublease or the Bond Indenture;
(ii) reasonable fees and other costs, including attorneys’ fees and expenses, not otherwise paid under the Sublease or the Bond Indenture, incurred by the Issuer in connection with its administration and enforcement of, and compliance with, the Sublease and the Bond Indenture; and
(iii) amounts advanced by the Issuer or the Bond Trustee under authority of the Sublease or the Bond Indenture and which the Corporation are obligated to repay.
If other Obligations, as defined in the Master Indenture, are issued for the benefit of the Corporation, payments of rent may be made to the trustee under the Related Financing Documents securing such Obligations.
Corporation’s Obligations Unconditional
The Corporation shall bear all risk of damage or destruction, in whole or in part, to the Existing Facilities or any part thereof, including, without limitation, any loss, complete or partial, or interruption in the use, occupancy or operation of the Existing Facilities, or any manner or thing which for any reason interferes with, prevents or renders burdensome the use or occupancy of the Existing Facilities or the compliance by the Corporation with any of the terms of the Sublease. The Corporation agrees that its obligation to make payments will be absolute and unconditional and that the Corporation will not be entitled to any abatement, diminution, set-off, abrogation, waiver or modification thereof nor to any termination of the Sublease by any reason whatsoever, regardless of any rights of set-off, recoupment or counterclaim that the Corporation might otherwise have against the Issuer, the Master Trustee or the Bond Trustee or any other party or parties and regardless of any contingency, act of God, event or cause whatsoever.
Use of the Existing Facilities
The Corporation will use the Existing Facilities only in furtherance of the lawful corporate purposes of the Corporation. The Corporation further agrees that it will not use the Existing Facilities, or permit the Existing Facilities to be used by any person which is not a Tax-Exempt Organization in such manner as would result in the loss of the exclusion from gross income for federal income tax purposes of interest on the Series 2014 Bonds otherwise afforded under Section 103(a) of the Code. The Corporation further agrees that the Existing Facilities
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shall not be used primarily for sectarian instruction or study or as a place for devotional activities or religious worship.
Repairs, Maintenance and Alterations
The Corporation shall at its own cost and expense keep the Existing Facilities in good repair and order, reasonable wear and tear excepted, and in as reasonably safe condition as its operations will permit and will make all necessary repairs thereto, interior and exterior, structural and nonstructural, ordinary as well as extraordinary and foreseen as well as unforeseen, and all necessary replacements or renewals, subject in all respects to the receipt by the Corporation of all necessary governmental permits and approvals therefor, and subject further, to the provisions of the Master Indenture.
The Corporation shall have the right from time to time at its sole cost and expense to make repairs, restorations, replacements, additions, alterations and changes, whether structural or nonstructural (hereinafter collectively referred to as "alterations") in or to the Existing Facilities; provided, however, that no alteration of any kind shall be made which would result in a violation of the provisions of the Sublease.
Effecting Changes in the Existing Facilities
The Corporation at its own cost and expense may make such additions, renewals, replacements or improvements to or alterations of the Existing Facilities or may construct or place on the Existing Facilities such additional or renewal or replacement facilities, furnishings or equipment as the Corporation may deem desirable to effectuate the purposes contemplated in the Sublease; provided that such additions, renewals, replacements, improvements, alterations, facilities, furnishings or equipment will not materially impair the structural soundness or the usefulness of the Existing Facilities nor adversely affect the purposes of the Sublease.
The Issuer covenants that, except as in the Lease, the Sublease and the Bond Indenture otherwise permitted, it will not, during the term of the Sublease sell or otherwise dispose of or encumber its leasehold interest in the Existing Facilities or any part thereof.
Easements
The Issuer and the Corporation shall at any time or times lawfully grant or release, as the case may be, with or without consideration, such easements, rights of way, licenses or other rights over, upon or beneath the surface of the land constituting a part of the Existing Real Property as shall constitute Permitted Encumbrances under the Master Indenture, provided that the efficient operation of the Existing Facilities or reasonable ingress thereto and egress therefrom shall not be thereby materially impaired.
Release of Land
Notwithstanding any other provision of the Sublease, the parties to the Sublease reserve the right, by mutual written consent at any time and from time to time, to amend the Sublease for the purpose of effectuating the release of one or more parcels of or interests in land constituting a part of the Existing Real Property and the removal from the purview of the Sublease and from the leasehold estate created by the Sublease of such parcel or parcels of or interest in land to the extent permitted by the conditions and requirements of the Sublease and the Master Indenture, provided that neither the efficient operations of the Existing Facilities nor reasonable ingress thereto or egress therefrom shall be materially impaired by such release or releases.
Events of Default
The occurrence and continuance of any of the following events shall constitute an "event of default" under the Sublease:
(a) failure of the Corporation to pay any installment of Basic Rent when the same shall become due and payable; or
(b) except as noted in clause (c) below, failure by the Corporation faithfully and efficiently to administer, maintain and operate the Existing Facilities as Hospital Facilities (as that term is defined in
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Section 140.01 of the Ohio Revised Code) or failure to provide the services thereof without regard to race, creed, color or national origin, or discrimination by the Corporation in the provision of such services by reason of race, creed, color or national origin; or
(c) the Corporation shall fail duly to observe, comply with or perform any covenant, representation, warranty or agreement on its part under the Sublease for a period of 60 days after the date on which written notice of such failure, requiring the same to be remedied, shall have been given to the Corporation and the Bond Trustee by the holders of at least 25% in aggregate principal amount of Series 2014 Bonds then outstanding; provided, however, if said default be such that it cannot be corrected within the applicable period, it shall not constitute an event of default if corrective action is instituted by the Corporation within the applicable period and diligently pursued until the default is corrected; and provided, further that if the performance, observation or compliance with any of the terms, covenants, conditions or provisions referred to in clause (b) and this clause shall be prevented by the application of federal or State wage and price controls, economic stabilization, cost containment requirements, or restrictions on rates, charges and/or revenues of the Corporation, or reimbursement regulations and policies, which may be imposed by third-party payors (whether governmental or private), and the Corporation shall have complied in full with their obligation described above under the caption "Summary of Certain Provisions of the Master Indenture – Rates and Charges," the inability to perform, observe or comply with any such term, covenant, condition or provision shall not constitute an event of default under the Sublease; or
(d) an event of default shall occur under the Bond Indenture; or
(e) if the principal of all Obligations shall have been declared by the Master Trustee to be immediately due and payable pursuant to the Master Indenture.
During the occurrence and continuance of any event of default, the Issuer shall have the following rights and remedies, in addition to any other remedies in the Sublease or by law provided, which rights and remedies (except for right to receive Basic Rent, which has been assigned to the Bond Trustee, and except for Unassigned Rights, which have been reserved by the Issuer and not assigned) have been assigned to the Master Trustee and therefore may be exercised by the Master Trustee without further notice to the Issuer except as expressly stated in the Sublease:
I. Acceleration of Maturity; Waiver of Default and Rescission of Acceleration. The Issuer may, by written notice to the Corporation, declare the Rent (if not then due and payable) to be due and payable immediately, and upon any such declaration the Rent shall become and be immediately due and payable, anything in the Sublease to the contrary notwithstanding. This provision, however, is subject to the condition that if, at any time after the Rent shall have been so declared and become due and payable and all arrears of Rent and the expenses of the Issuer shall be paid by the Corporation, and every other default in the observance or performance of any covenant, condition or agreement in the Sublease or the Bond Indenture contained shall be made good, or be secured, to the satisfaction of the Issuer, or provision deemed by the Issuer to be adequate shall be made therefor, then and in every such case the Issuer by written notice to the Corporation shall waive the event of default by reason of which the Rent shall have been so declared and become due and payable, and may rescind and annul such declaration and its consequences; but no such waiver, rescission or annulment shall extend to or affect any subsequent event of default or impair any right consequent thereon.
II. Right to Bring Suit. The Issuer may in its discretion, but subject to its right to be indemnified to
its satisfaction, proceed to protect and enforce its rights by a suit or suits in equity or at law, whether for damages or for the specific performance of any covenant or agreement contained in the Sublease, or in aid of the execution of any power granted; provided, however, that all costs incurred by the Issuer, including reasonable counsel fees, shall be paid to the Issuer by the Corporation on demand.
III. Eject, Re-let and Terminate Sublease. Subject to applicable law, the Issuer may (i) enter and take
possession of the Existing Facilities, or any appropriate part thereof, without terminating the Sublease, (ii) collect rentals and enforce all other remedies of the Corporation under any leases of, or assignments or grants of rights to use or occupy, the Existing Facilities, or any part thereof, but without being deemed to have affirmed the leases, assignments or grants, and (iii) enter into new leases, assignments and grants on any terms that the Issuer may deem to be suitable for the Existing Facilities, or any part thereof, which leases, assignments and grants may provide that they shall not be terminated or affected if the Corporation
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cures the event of default. Rentals and other amounts described in clauses (ii) or (iii) of the preceding sentence may be applied by the Issuer to any costs of administration, operation, repair or maintenance of the Existing Facilities, or any part thereof, as the Issuer may deem reasonably useful, and the remaining balance shall be applied (A) to the payment of the Series 2014 Note and (B) to the payment of other amounts payable, or to become payable, under the Sublease, in the order of priority to be determined by the Issuer in accordance with the Sublease. Any balance of the rentals and other amounts remaining thereafter shall be paid promptly to the Corporation by the Issuer in accordance with the Sublease, and the Issuer may hold the Corporation liable for the difference between those rentals and other amounts and the Basic Rent, Additional Rent and other amounts payable under the Sublease.
Before any of the foregoing remedies are exercised by the Issuer or its designee if an event of default under
clause (b) above occurs, the Issuer shall give written notice to the Corporation that it believes an event of default under that clause has occurred, specifying the charges or circumstances constituting the event of default in sufficient detail that the Corporation will be fully advised of the nature of the charges made against it and able to adequately prepare a response thereto. Such notice shall fix a date, time and place for a hearing before a hearing officer who shall be a member of the American Arbitration Association or any organization which is nationally recognized as performing the functions now performed by that Association who is knowledgeable concerning health care facilities reasonably comparable in size and type to the Existing Facilities and who shall be mutually acceptable to the Corporation and the Issuer. The hearing shall be held to determine whether an Event of Default has occurred. That date shall not be sooner than 30 days following the giving of that notice.
At the date, time and place specified in the notice, unless the Issuer shall have withdrawn the notice, the Corporation shall be heard on the charges specified in the notice, shall be confronted with the evidence of the alleged Event of Default, shall have the right to examine and to cross-examine witnesses, and may introduce any other evidence and testimony with respect to the alleged Event of Default which the Corporation desires. After the hearing is concluded, the hearing officer shall consider whether an Event of Default has occurred and shall report his findings or determinations to the Issuer and the Corporation.
If the hearing officer determines that an Event of Default has occurred, the Issuer may give notice to the Corporation and the Bond Trustee of its intention to terminate the Sublease on the basis of such Event of Default and effective as of a date not earlier than the 30th day following the giving of the notice. If on the date specified for termination, the determination of such Event of Default shall not have been appealed by the Corporation or the Bond Trustee to any judicial authority or suspended or waived by the Issuer, the Sublease shall be terminated, subject to reinstatement pursuant to the terms thereof. If that determination has been appealed, the Sublease shall not be terminated until the 30th day following the expiration of all periods for judicial review or appeal.
Payment of Defaulted Amounts on Demand
In case the Corporation shall fail to pay any installment of Rent when and as the same shall become due and payable, whether at maturity or upon designation for prepayment or by declaration, or otherwise, then upon written demand of the Issuer, the Corporation will pay to the Bond Trustee the whole amount which then shall have become due and payable with interest at the rate borne by the Series 2014 Bonds until paid, and in addition thereto such further amount as shall be sufficient to cover the cost and expenses of collection, including a reasonable compensation to the Issuer, the Master Trustee, the Bond Trustee and their agents, attorneys and counsel, and any expenses or liabilities incurred by any of them.
Reinstatement
Notwithstanding any termination of the Sublease, the Corporation may, with the prior written consent of the Master Trustee, at any time after such termination pay all accrued unpaid Basic Rent plus any costs to the Issuer occasioned by the default including all interest required to be paid in accordance with the Bond Indenture on overdue principal and, to the extent lawful, on any overdue interest, and on the principal of Series 2014 Bonds not redeemed in accordance with the Bond Indenture by reason of any default by the Corporation in the payment of Basic Rent, and fully cure, all other defaults then capable of being cured. Upon such payment and cure, the Sublease shall be fully reinstated, as if they had never been terminated, and the Corporation shall be restored to the use, occupancy and possession of the Existing Facilities.
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SUMMARY OF CERTAIN PROVISIONS OF THE BOND INDENTURE
Creation of Trust
In connection with the issuance of the Series 2014 Bonds, the Issuer and the Bond Trustee will execute and deliver the Bond Indenture. In order to secure payment of the principal of, premium, if any, and interest on the Series 2014 Bonds, and to secure the other obligations of the Issuer set forth in the Bond Indenture, the Issuer has pledged, assigned and granted a security interest in and to the Bond Trustee:
(a) All right, title and interest of the Issuer in and to all of the Basic Rent received or to be received under the Sublease and subject to the Assignment, the rights and remedies available therein to collect the Basic Rent;
(b) All moneys and securities on deposit from time to time in the funds established under the provisions of the Bond Indenture; and
(c) Any and all other property of every kind and nature from time to time hereafter, by delivery or by writing of any kind pledged, assigned or transferred as and for additional security by the Issuer or by anyone on its behalf to the Bond Trustee, which is authorized to receive the same at any time as additional security;
to hold in trust, for the equal and ratable benefit, security and protection of all owners of the Series 2014 Bonds issued under the Bond Indenture.
Application of Series 2014 Bond Proceeds and Other Moneys
The Issuer shall deposit with the Bond Trustee all proceeds from the sale of the Series 2014 Bonds and the Bond Trustee shall out of such proceeds and other available moneys:
(a) Deposit $0 to the credit of the Debt Service Reserve Fund, which shall be funded when required pursuant to the provisions of the Bond Indenture summarized under the caption "Summary of Certain Provisions of the Bond Indenture – Funding of Debt Service Reserve Fund; Debt Service Reserve Fund Requirement" from other available moneys;
(b) Deposit to the Expense Fund the amount necessary to pay the fees and expenses incurred in connection with the issuance of the Series 2014 Bonds;
(c) Deposit to the bond fund established under the trust indenture securing the Prior Bonds (the "Prior Bond Fund") the aggregate sum pursuant to a letter of instructions (the "Letter of Instructions") from the Issuer approved by the Corporation, which, together with the sums contained in the Prior Bond Fund, is the amount necessary to refund and retire the Prior Bonds; and
(d) Deposit to the Project Fund the balance of the proceeds of the Series 2014 Bonds, which shall be disbursed pursuant to the requirements of the Bond Indenture or pursuant to the Letter of Instructions.
Funding of Debt Service Reserve Fund; Debt Service Reserve Fund Requirement
So long as the Obligated Group maintains Days Cash on Hand of at least 600 as of each Testing Date, as calculated pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Liquidity Covenant," the Debt Service Reserve Fund shall not be required to be funded. In the event that the Days Cash on Hand of the Obligated Group is less than 600 as of any Testing Date, the Corporation shall deliver to the Bond Trustee an amount of cash or Qualified Investments equal to the Debt Service Reserve Fund Requirement for deposit into the Debt Service Reserve Fund. Upon funding of the Debt Service Reserve Fund, in the event that amounts on deposit in the Principal Account and Interest Account or the Bond Redemption Fund are insufficient to make payments of principal of, redemption (if any), and interest on the Series 2014 Bonds when due, or upon acceleration of the Series 2014 Bonds pursuant to the provisions of the Bond
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Indenture summarized under the caption "Summary of Certain Provisions of the Bond Indenture – Acceleration," the Bond Trustee shall withdraw funds from the Debt Service Reserve Fund. Any amounts so transferred to the Bond Trustee shall be used solely to pay the principal of, premium, if any, and interest on the Series 2014 Bonds.
If required pursuant to the above paragraph, the Corporation shall deposit funds into the Debt Service Reserve Fund in an amount equal to the Debt Service Reserve Fund Requirement no later than ninety (90) days after the earlier of (i) the date on which the Corporation delivers its Officer's Certificate, as Obligated Agent, pursuant to the provisions of the Master Indenture summarized under the caption "Summary of Certain Provisions of the Master Indenture – Financial Statements and Related Matters," showing the Days Cash on Hand calculation, or (ii) the date by which the Corporation is required to furnish such Officer's Certificate pursuant to such provisions of the Master Indenture.
If on any date, the amount on deposit in the Debt Service Reserve Fund is less than 100% of the Debt Service Reserve Fund Requirement as a result of the Debt Service Reserve Fund having been drawn upon, the Corporation agrees to restore the amount on deposit in the Debt Service Reserve Fund to an amount equal to 100% of the Debt Service Reserve Fund Requirement in not more than 12 substantially equal monthly installments beginning with the first day of the seventh month after the month in which such draw occurred.
After funding of the Debt Service Reserve Fund, so long as no event of default has occurred and is continuing under the Bond Indenture, if the Obligated Group later has Days Cash on Hand of at least 900 as of a Testing Date, all funds in the Debt Service Reserve Fund shall be returned to the Corporation. After the Corporation has provided an Officer’s Certificate to the Bond Trustee confirming such level of Days Cash on Hand, the Bond Trustee shall return any funds in the Debt Service Reserve Fund to the Corporation as soon as practicable.
Investment of Funds
Moneys in the Interest Account, the Principal Account, the Debt Service Reserve Fund, the Bond Redemption Fund, the Expense Fund and the Project Fund shall be invested in Qualified Investments to the extent and in the manner provided for in the Sublease. The Bond Trustee shall be fully protected in relying on any written investment direction of the Corporation as to the suitability and the legality of such directed investments. If the Corporation fails to provide the Bond Trustee with written investment directions the amounts held in such Funds shall be held uninvested. The Bond Trustee shall not be liable or responsible for any loss resulting from any such investment. Any such investments shall be held by or under the control of the Bond Trustee and shall mature at such times as it is anticipated that moneys from the particular Fund or Account will be required for the purposes of the Bond Indenture. The Bond Trustee is authorized to trade with itself in the purchase and sale of securities for such investment.
For the purpose of determining the amount from time to time on deposit in any of said Funds or Accounts, such investment shall be valued at the market value thereof. Such valuation shall occur at least annually, commencing November 15, 2015, and with respect to the Debt Service Reserve Fund, shall occur on each Valuation Date. In computing for any purpose the amount in any fund on any date, Qualified Investments purchased shall be valued at the lesser of their market value or cost.
All income from the investment of moneys in the Principal Account, the Interest Account, the Debt Service Reserve Fund, the Bond Redemption Fund, the Expense Fund and the Project Fund shall be deposited into the respective Fund, Account or Subaccount from which such investment was made.
The Issuer shall not cause the Bond Trustee to make any investment or determination or do any other act or thing during the period that any Series 2014 Bonds are Outstanding under the Bond Indenture which would cause the Series 2014 Bonds to become or be classified as "arbitrage bonds" within Sections 103(b)(2) and 148 of the Code. It is further understood and agreed that the Bond Trustee shall not be required at any time to make any such investment or to do any such act.
Events of Default
Each of the following events is declared an "event of default" under the Bond Indenture:
(a) payment of any installment of interest on any of the Series 2014 Bonds shall not be made when the same is due and payable; or
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(b) payment of the principal of, or the redemption premium, if any, on any of the Series 2014 Bonds shall not be made when the same is due and payable, either at maturity or by redemption or otherwise; or
(c) the Issuer shall for any reason be rendered incapable of fulfilling its obligations under the Bond Indenture or under the Sublease; or
(d) any event of default as defined in the Sublease shall occur and be continuing; or
(e) the Master Trustee shall declare under the Master Indenture that the principal of all Obligations is immediately due and payable; or
(f) the Issuer shall default in the due and punctual performance of any other of the covenants, conditions, agreements and provisions contained in the Series 2014 Bonds or in the Bond Indenture or any agreement supplemental thereof on the part of the Issuer to be performed and such default shall continue for 30 days after written notice specifying such default and requiring the same to be remedied shall have been given to the Issuer and the Corporation by the Bond Trustee, which shall only give such notice at the written request of the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Series 2014 Bonds then outstanding; provided, however, if said default be such that it cannot be corrected within the applicable period, it shall not constitute an event of default if corrective action is instituted by the Issuer within the applicable period and diligently pursued until the default is corrected.
Acceleration
Upon the happening of any event of default specified in the Bond Indenture, and the continuance of the same for the specified period, if any, the Bond Trustee may, without any action on the part of the owners of the Series 2014 Bonds, and shall (i) in the event the principal of the Notes has been declared immediately due and payable, or (ii) upon the written request of the owners of not less than twenty-five percent (25%) in aggregate principal amount of the Series 2014 Bonds then outstanding, exclusive of Series 2014 Bonds then owned by the Issuer or the Corporation, and upon being indemnified to its satisfaction, by notice in writing delivered to the Issuer and the Corporation, declare the entire principal amount of the Series 2014 Bonds then outstanding and the interest accrued thereon immediately due and payable, and the said entire principal and accrued interest shall thereupon become and be immediately due and payable.
The provisions of the preceding paragraph, however, are subject to the condition that if, after the principal of, premium, if any, and accrued interest on, the Series 2014 Bonds and the principal of the Obligations have been declared immediately due and payable, the declaration of acceleration of the Obligations shall be annulled in accordance with the provisions of the Master Indenture, the declaration of acceleration of the Series 2014 Bonds shall be automatically annulled, and the Bond Trustee shall promptly give written notice of such annulment to the Issuer and the Corporation and notice to Bondholders in the same manner as a notice of redemption. The provisions of the preceding paragraph are subject to the further condition that after the principal of, premium, if any, and accrued interest on, the Series 2014 Bonds have been declared immediately due and payable, the owners of a majority in aggregate principal amount of the Series 2014 Bonds then outstanding shall have the right, by written notice to the Bond Trustee, the Issuer and the Corporation, to annul such declaration of acceleration of the Series 2014 Note pursuant to the Master Indenture. No such annulment shall extend to or affect any subsequent event of default or impair any right or remedy consequent thereon.
Remedies; Rights of Owners of the Series 2014 Bonds
Upon the occurrence of an event of default the Bond Trustee may also pursue any available remedy at law or in equity to enforce the payment of the principal of and interest on the Series 2014 Bonds then outstanding or to enforce any obligations of the Issuer under the Bond Indenture.
If any event of default shall have occurred, and if requested so to do in writing by the owners of not less than twenty-five percent (25%) in aggregate principal amount of Series 2014 Bonds then outstanding, and having been indemnified as provided in the Bond Indenture, the Bond Trustee shall be obligated to exercise such one or more of the rights and powers conferred by the Bond Indenture as the Bond Trustee, being advised by counsel, shall deem most expedient in the interests of the Bondholders.
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In the event that the Master Trustee has accelerated the Obligations and is pursuing its available remedies under the Master Indenture, the Bond Trustee, without waiving any event of default, shall not pursue its available remedies under the Bond Indenture or the Sublease in such manner as to hinder or frustrate the pursuit by the Master Trustee of its remedies under the Master Indenture; provided that the Bond Trustee may take any action permitted of an Obligation Holder under the Master Indenture.
Waivers of Events of Default
The Bond Trustee may, in its discretion waive any event of default and its consequences and rescind any declaration of maturity of principal of and interest on the Series 2014 Bonds, and shall do so upon the written request of the owners of a majority in aggregate principal amount of all Series 2014 Bonds then outstanding; provided, however, that there shall not be waived (a) any event of default in the payment of the principal of any outstanding Series 2014 Bonds at the date of maturity specified therein, or upon proceedings for mandatory redemption or any mandatory sinking fund payments required by any supplemental indenture or (b) any default in the payment when due of the interest or premium on any such Series 2014 Bonds unless prior to such waiver or rescission, all arrears of interest, or all arrears of payments of principal, with interest at the rate borne by the Series 2014 Bonds on all arrears of payments of principal until paid, as the case may be, and all expenses of the Bond Trustee in connection with such default, shall have been paid or provided for, and in case of any such waiver or rescission, or in case any proceeding taken by the Bond Trustee on account of any such default shall have been discontinued or abandoned or determined adversely, then and in every such case the Issuer, the Bond Trustee and the Bondholders shall be restored to their former positions and rights, respectively, but no such waiver or rescission shall extend to any subsequent or other default, or impair any right consequent thereon.
Supplemental Indentures Not Requiring Consent of Owners of Series 2014 Bonds
The Issuer and the Bond Trustee may, without the consent of, or notice to, any of the owners of the Series 2014 Bonds, enter into an indenture or indentures supplemental to the Bond Indenture, as shall not be inconsistent with the terms and provisions of the Bond Indenture, for any one or more of the following purposes:
(a) To cure any ambiguity, inconsistency or formal defect or omission in the Bond Indenture;
(b) To grant to or confer upon the Bond Trustee for the benefit of the owners of the Series 2014 Bonds any additional rights, remedies, powers or authority that may lawfully be granted to or conferred upon such owners or the Bond Trustee;
(c) To subject to the Bond Indenture additional revenues, properties or collateral;
(d) To add to the covenants and agreements of the Issuer contained in the Bond Indenture other covenants and agreements thereafter to be observed for protection of the Bondholders, or, if in the judgment of the Bond Trustee such is not to the prejudice of the Bond Trustee or the Bondholders, to surrender or limit any right, power or authority reserved to or conferred upon the Issuer in the Bond Indenture, including, without limitation, the limitation of rights of redemption;
(e) To evidence any succession to the Issuer and the assumption by such successor of the covenants and agreements of the Issuer contained in the Bond Indenture, the Sublease or any subsequent lease or other instruments providing for the operation of the Existing Facilities, and the Series 2014 Bonds;
(f) Reserved;
(g) To modify, amend or supplement the Bond Indenture or any indenture supplemental thereto in such manner as shall not, in the opinion of the Bond Trustee, be materially prejudicial to the interest of the owners of the Series 2014 Bonds, so as to permit the qualification thereof under the Trust Indenture Act of 1939 or any similar federal statute hereafter in effect or under any state blue sky law;
(h) To conform the Bond Indenture to any changes in the Lease or Sublease Documents permitted by the Bond Indenture;
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(i) To provide for the issuance of coupon Series 2014 Bonds if in the written opinion of an attorney or a firm of attorneys of nationally recognized standing in matters of the tax-exempt status of municipal obligations the interest on such coupon Series 2014 Bonds would be exempt from federal income taxes;
(j) To permit the use of a book entry system to identify the owner of any interest in an obligation issued by the Issuer under the Bond Indenture, whether that obligation was formerly, or could be, evidenced by a physical security;
(k) To permit the Bond Trustee to comply with any duties imposed upon it by law;
(l) To specify further the duties and responsibilities of the Bond Trustee;
(m) To make any other change which is not in the judgment of the Bond Trustee prejudicial to the Bond Trustee or materially prejudicial to the Bondholders; and
(n) In connection with any other change which, in the judgment of a Consultant, a copy of whose report shall be sent to the Bond Trustee, (1) is in the best interest of the Corporation and (2) does not materially adversely affect the Bondholders taken as a group; provided that no such change shall be made if within 60 days of its receipt of such Consultant’s report, the Bond Trustee shall have obtained a report from another Consultant indicating that in its opinion either clauses (1) or (2) of this subsection (n) is not satisfied; provided further, that the Bond Trustee shall be under no duty to retain another such Consultant.
Supplemental Indentures Requiring Consent of Owners of Series 2014 Bonds
Exclusive of supplemental indentures not requiring the consent of owners of Series 2014 Bonds, and not otherwise, the owners of not less than a majority in aggregate principal amount of the Series 2014 Bonds then outstanding shall have the right, from time to time, anything contained in the Bond Indenture to the contrary notwithstanding, to consent to and approve the execution by the Issuer and the Bond Trustee of such other indenture or indentures supplemental thereto as shall be deemed necessary and desirable by the Issuer for the purpose of modifying, altering, amending, adding to or rescinding, in any particular, any of the terms or provisions contained in the Bond Indenture or in any supplemental indenture; provided, however, that nothing shall permit or be construed as permitting (a) an extension of the stated maturity or reduction in the principal amount of, or reduction in the rate or extension of the time of paying of interest on, or reduction of any premium payable on the redemption of, any Series 2014 Bonds, without the consent of the owner of such Series 2014 Bonds, or (b) a reduction in the amount or extension of the time of any sinking fund payment required under the Bond Indenture, without the consent of the owners of all the Series 2014 Bonds at the time Outstanding, or (c) the creation of any lien prior to or on a parity with the lien of the Bond Indenture, without the consent of the owners of all the Series 2014 Bonds at the time outstanding, or (d) a reduction in the aforesaid aggregate principal amount of Series 2014 Bonds the owners of which are required to consent to any such supplemental indenture, without the consent of the owners of all the Series 2014 Bonds at the time outstanding which would be affected by the action to be taken, or (e) the modification of the rights, duties or immunities of the Bond Trustee, without the written consent of the Bond Trustee.
Amendments to Lessee Documents Not Requiring Consent of Bondholders
The Issuer and the Corporation with the consent of the Bond Trustee may, without the consent of or notice to the owners of Series 2014 Bonds, enter into any amendment, change or modification of the Lessee Documents as may be permitted or required (i) by the provisions of the Lessee Documents and the Bond Indenture, (ii) for the purpose of curing any ambiguity, inconsistency or formal defect or omission therein, (iii) in order to provide for the issuance of any additional Related Bonds, including, without limitation, the addition of the State or any political subdivision thereof as a lessee under a Lease and as a lessor under a Sublease, (iv) in connection with adding or releasing real property to the Lessee Documents as permitted therein or in connection with the granting of easements as permitted by the Sublease, (v) any amendments, modifications or changes which, if they were amendments, modifications or changes to the Bond Indenture, would be permitted without the consent of Bondholders, or (vi) in connection with any other change therein which, in the judgment of the Bond Trustee, is not materially to the prejudice of the Bond Trustee or materially adverse to the owners of the Series 2014 Bonds
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Amendments to Lessee Documents Requiring Consent of Bondholders
Except for the amendments, changes or modifications to the Lessee Documents not requiring the consent of Bondholders, neither the Issuer nor the Bond Trustee shall consent to any other amendment, change or modification of the Lessee Documents without the written approval or consent of the Obligated Group Representative and the owners of the amount of Series 2014 Bonds outstanding required by the Bond Indenture which approval or consent shall be given and procured as provided therein.
No Amendment May Alter Series 2014 Note
Under no circumstances shall any amendment to the Lessee Documents alter the Series 2014 Note or the payments of principal and interest thereon, without the consent of the owners of all the Series 2014 Bonds at the time outstanding.
Discharge of Lien
If the Issuer or the Corporation, as the case may be, shall pay or cause to be paid the principal of, premium, if any, and interest on the Series 2014 Bonds at the times and in the manner stipulated therein, and shall have made arrangements satisfactory to the Bond Trustee for the payment of all fees, costs and expenses of the Bond Trustee and each paying agent, then the presents and the estate and rights granted by the Bond Indenture shall, at the direction of the Corporation, cease, determine and be void, and thereupon the Bond Trustee shall cancel and discharge the lien of the Bond Indenture and execute and deliver to the Issuer such instruments in writing as shall be requisite to satisfy the lien thereof, and assign and deliver to the Issuer any property at the time is subject to the lien of the Bond Indenture which may then be in its possession, except amounts required to be paid to the Corporation under the Sublease and except funds held by the Bond Trustee for the payment of principal of, premium, if any, and interest on the Series 2014 Bonds.
All Outstanding Series 2014 Bonds and all interest due thereon, or a portion of the Outstanding Series 2014 Bonds and all interest due thereon, shall prior to the maturity thereof be deemed to have been paid within the meaning and with the effect expressed in the immediately preceding paragraph if, under circumstances which do not render interest on the Series 2014 Bonds subject to federal income taxation, (a) there shall have been deposited with the Bond Trustee either moneys in an amount which shall be sufficient, or Defeasance Obligations the principal of and the interest or other income on which when due will provide moneys which, together with moneys, if any, deposited with the Bond Trustee at the same time, shall be sufficient to pay when due the principal of, premium, if any, and interest due and to become due on said Series 2014 Bonds on and prior to the maturity date thereof, (b) there shall be delivered to the Bond Trustee the report of an independent certified public accountant or nationally recognized bond counsel or other financial services firm to the effect that the moneys or Defeasance Obligations will be sufficient to pay, as the same becomes due at maturity or upon redemption, the principal of and interest and premium, if any, on the Series 2014 Bonds and an opinion of nationally recognized bond counsel to the effect that the Series 2014 Bonds have been paid within the meaning of the Bond Indenture, and (c) the Issuer shall have given the Bond Trustee in form satisfactory to it irrevocable instructions to mail, postage prepaid, a notice to the owners of such Series 2014 Bonds that the deposit required by (a) above has been made with the Bond Trustee and that said Series 2014 Bonds are deemed to have been paid and stating the date upon which moneys are to be available for the payment of the principal on said Series 2014 Bonds, provided, however, that the lien of the Bond Indenture shall not be discharged unless and until all outstanding Series 2014 Bonds and all interest due thereon are deemed to have been paid within the meaning of the Bond Indenture. Except as provided in the Bond Indenture, neither direct or guaranteed obligations of the United States of America nor moneys deposited with the Bond Trustee nor principal or interest payments on any such securities shall be withdrawn or used for any purpose other than, and shall be held in trust for, the payment of the principal of, premium, if any, and interest on the Series 2014 Bonds for which such deposit was made.
SUMMARY OF ASSIGNMENT
Pursuant to the Assignment, the Issuer has assigned its rights under the Lease and the Sublease to the Master Trustee, except for Unassigned Rights that it reserves to itself and except for the Issuer's right to receive Basic Rent under the Sublease, which has been assigned to the Bond Trustee under the Bond Indenture. The Corporation has consented to the Assignment.
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SUMMARY OF CERTAIN PROVISIONS OF THE MORTGAGE
The following information is a summary of certain provisions of the Mortgage. Reference is made to the Mortgage for a full and complete statement of its provisions.
General
The Mortgage will secure the obligation of the Corporation to pay all Obligations issued under the Master Indenture.
Indebtedness
The Corporation will promptly pay, or cause to be paid, when due, the following indebtedness (hereinafter collectively called the "Indebtedness" under this caption "Summary of Certain Provisions of the Mortgage"):
(a) All Obligations issued under the Master Indenture, including without limitation the Series 2004A Obligation, any Obligation issued to secure a swap (as defined in the Master Indenture) and any other Obligations heretofore or hereafter issued under the Master Indenture;
(b) All advances or expenses of any kind incurred or payable by the Master Trustee pursuant to the provisions of or on account of the Mortgage or the Master Indenture;
(c) All future advances disbursed by the Master Trustee to the Corporation under the Mortgage;
(d) Payment of all other sums with interest thereon becoming due and payable to the Master Trustee in the Mortgage under the terms of the Mortgage or as set forth in the Master Indenture; and
(e) Performance and discharge of each and every term, provision, condition, obligation, covenant, and agreement of the Corporation in the Mortgage or as set forth in the Master Indenture.
Impositions
The Corporation will pay, or cause to be paid, when due:
(a) All of the following (hereinafter collectively called the "Impositions"): all real estate taxes, personal property taxes, assessments, water and sewer rates and charges, and all other governmental levies and charges, of every kind and nature whatsoever, general and special, ordinary and extraordinary, foreseen and unforeseen, which are assessed, levied, confirmed, imposed or become a lien upon or against the Mortgaged Property or any portion thereof, and all taxes, assessments and charges upon the rents, issues, income or profits of the Mortgaged Property, or which become payable with respect thereto or with respect to the occupancy, use or possession of the Mortgaged Property, whether such taxes, assessments or charges are levied directly or indirectly;
(b) All other payments or charges required to be paid to comply with the terms and provisions of the Mortgage and the Master Indenture, which is incorporated in the Mortgage by reference;
(c) After an Event of Default under the Mortgage, the Master Trustee may request that, any payments made by the Corporation to the Master Trustee at the time payments are due under the Series 2014 Bonds shall be accompanied by a sum of money to be held without interest on account of real estate taxes and assessments levied against the Mortgaged Property and insurance premiums for policies required under the Mortgage equal to a proportionate amount of the annual amount of such charges as estimated by the Master Trustee, in order to accumulate sufficient funds to pay such taxes, assessments and insurance premiums 30 days prior to their due date. Said sum shall be held in trust by the Master Trustee and, provided the Corporation is not in default hereunder, said sum so held shall be used to pay taxes and insurance. In the event of default under the Mortgage, the Master Trustee may apply all monies held pursuant to this paragraph in the manner it, in its sole discretion, determines;
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(d) All other fees, charges and assessments, general or special, in connection with the Mortgaged Property. Any tax or special assessment which is a lien on the Mortgaged Property may be paid in installments provided that each installment is paid on or prior to the date when the same is due without the imposition of any penalty; and
(e) Within 10 days after demand therefor, the Corporation shall deliver to the Master Trustee the original, or a photostatic copy, of the official receipt evidencing payment of Impositions or other proof of payment satisfactory to the Master Trustee.
The obligation of the Corporation to pay any Imposition is subject to the right of the Corporation to contest, in good faith, the amount or validity thereof, as described in the Master Indenture.
Compliance with Laws
The Corporation will comply in all material respects with all statutes, laws, ordinances, and governmental rules, regulations, licenses, permits, authorizations and orders to which it or the Mortgaged Property is subject or which are applicable to its business, properties and assets pursuant to the Master Indenture. The Corporation will also observe and comply with all statutes, orders, requirements or decrees relating to the Mortgaged Property by any federal, state or municipal authority, including environmental laws.
Condition of Mortgaged Property
The Corporation will keep and maintain, or cause to be kept and maintained, the Mortgaged Property in accordance with and pursuant to the Master Indenture.
Improvements
The Corporation will not remove or demolish, or suffer or permit others to remove or demolish, any improvements once installed or placed on the Mortgaged Property or, subject to the provisions of the Master Indenture, cause or permit such improvements to be materially changed or altered without the prior written consent of the Master Trustee, and the Corporation will not institute or cause to be instituted any proceedings that could change the permitted use of the Mortgaged Property from the use presently zoned.
Insurance
The Corporation at its sole cost and expense shall provide and keep in force at all times for the benefit of the Master Trustee with respect to the Mortgaged Property insurance in accordance with the requirements of the Master Indenture.
Sale, Transfer or Encumbrance.
(a) The Corporation will not further mortgage, sell or convey, grant a deed of trust, pledge, grant a security interest or other interest in, contract to do any of the foregoing, execute a land contract or installment sales contract, enter into a lease whether with or without option to purchase or otherwise dispose of, further encumber or suffer the encumbrance of, whether by operation of law or otherwise, the Mortgaged Property, without the prior written consent of the Master Trustee, which may be withheld in the Master Trustee’s absolute discretion, other than (i) sale of or other disposition of any Mortgaged Property in accordance with the terms of the Master Indenture, and (ii) Permitted Encumbrances (as defined in the Master Indenture).
(b) The Corporation will keep and maintain the Mortgaged Property free from all liens of persons supplying labor, materials or services for the construction, modification, repair or maintenance of any building or improvements on or relating to the Mortgaged Property. If any such lien is filed against the Mortgaged Property, the Corporation will discharge the same of record within 30 days after the lien is filed or, if not filed, within 30 days after Corporation has notice thereof, provided that, in connection with any such lien or claim that the Corporation may in good faith desire to contest, upon prior written notice to the Master Trustee the Corporation may contest the same by appropriate legal proceedings, diligently
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prosecuted if, upon request of the Master Trustee, the Corporation has posted a bond or other security sufficient to pay such lien or claim.
(c) If any portion of the Property or any beneficial interest therein, is sold, conveyed, transferred, encumbered, or full possessory rights therein transferred, whether voluntarily, involuntarily, or by operation of law, except as permitted by the Master Indenture, then the Master Trustee may declare all sums secured by the Mortgage to be immediately due and payable, whether or not the Master Trustee has consented or waived its rights in connection with any previous similar transaction.
Eminent Domain
The Corporation shall give immediate notice to the Master Trustee upon the Corporation’s obtaining knowledge of (i) any interest on the part of any person possessing or who has expressed the intention to possess the power of eminent domain to purchase or otherwise acquire the Mortgaged Property or (ii) the commencement of any action or proceeding to take the Mortgaged Property by exercise of the right of condemnation or eminent domain or of any action or proceeding to close or to alter the grade of any street on or adjoining the Site (as defined in the Mortgage). In such event, all such proceedings, procedures and application of proceeds shall be controlled by the provisions of the Master Indenture.
Rights of the Master Trustee
If the Corporation fails to pay any Impositions or to make any other payment required to be made by the Corporation under the Mortgage at the time and in the manner provided in the Mortgage, or if an Event of Default occurs under the Mortgage or the Master Indenture, then without limiting the generality of any other provisions of the Mortgage and without waiving or releasing the Corporation from any of its obligations under the Mortgage or under the Master Indenture, upon reasonable notice the Master Trustee shall have the right, but shall be under no obligation, to pay any Impositions or other payment, or any sums due under the Mortgage, or the Master Indenture or any other security document for the payment of taxes, assessments, insurance premiums, or costs incurred for the protection of the Mortgaged Property, and may perform any other act or take such action as may be appropriate to cause such other term, covenant, condition or obligation to be promptly performed or observed on behalf of the Corporation. In any such event, the Master Trustee and any person designated by the Master Trustee shall have, and is granted by the Mortgage, the right to enter upon the Mortgaged Property at any time and from time to time for the purpose of performing any such act or taking any such action, and all monies expended by the Master Trustee in connection with making such payment or performing such act (including, but not limited to, legal expenses and disbursements), together with interest thereon from the date of each such expenditure at the Default Rate from the date of expenditure, shall be paid by the Corporation to the Master Trustee forthwith upon demand by the Master Trustee and shall be secured by the Mortgage. The Master Trustee shall have the right at reasonable times to enter into and inspect the Mortgaged Property.
Unpaid Impositions
In the event that any governmental agency claims that any tax or other governmental charge or Imposition is due, unpaid or payable by the Corporation or the Master Trustee upon the Mortgaged Property or the Indebtedness (other than income tax, franchise tax or similar tax on the interest or premium receivable by the Master Trustee thereunder) and including any recording tax, documentary stamps or other tax or imposition on the Mortgage, the Corporation forthwith will either (a) pay such tax and, within a reasonable time thereafter, deliver to the Master Trustee satisfactory proof of payment thereof or (b) deposit with the Master Trustee the amount of such claimed tax or other governmental charge or imposition, together with interest and penalties thereon, or other security reasonably satisfactory to the Master Trustee, pending an application for a review of the claim for such tax or other governmental charge or imposition and thereafter furnish either evidence satisfactory to the Master Trustee that such claim has been withdrawn or defeated (in which event any such deposit shall be returned to the Corporation) or at the direction from the Corporation to the Master Trustee to pay the same out of the deposit above mentioned, with any excess due over the amount of such deposit to be paid by the Corporation directly to the taxing authority and any excess of such deposit over such payment by the Master Trustee to be returned to the Corporation provided the Corporation is not in default under the provisions of the Mortgage. Notwithstanding the foregoing, the Corporation may not contest any of the above Impositions if such contest would subject the Corporation or the Master Trustee to any criminal liability, or if delay in compliance with any of the Impositions, shall, in the reasonably judgment of the Master Trustee, place all or any part of the Mortgaged Property in imminent danger of being forfeited or lost, then the Corporation shall, upon notice from the Master Trustee, immediately comply with such Impositions.
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Conflict Among Agreements
The Mortgage is given in conjunction with the Master Indenture providing as collateral security among other things a first Mortgage on the Corporation’s right, title, and interest in and to the Mortgaged Property. In the event of any conflict between the provisions of the Mortgage and the provisions of the Master Indenture, the provisions of the Master Indenture shall prevail.
Event of Default Defined
The entire Indebtedness shall automatically become due and payable, at the option of the Master Trustee, without notice or demand, if any one or more of the following events shall occur ("Events of Default"):
Cross-Default. If an event of default, as described under the caption "Summary of Certain Provisions of the Master Indenture – Events of Default," occurs under the Master Indenture and/or under one or more of the Obligations or any other mortgage or security document entered into in connection with the foregoing beyond any applicable grace period set forth therein.
Breach of Insurance Covenants. If the Corporation fails to maintain in force the insurance required by the Insurance section of the Mortgage.
Breach of Covenants. If the Corporation defaults in the performance or observance of any other covenant or agreement contained in the Mortgage and such default continues for 30 days after written notice from the Master Trustee, unless the default is of a nature that cannot be reasonably cured within 30 days and the Corporation commences such cure within 30 days and thereafter diligently prosecutes such cure to completion.
Representations and Warranties Untrue. If any representation or warranty of the Corporation under the Mortgage proves untrue or misleading in any material respect as of the date it was made.
Foreclosure. If any foreclosure proceeding (whether judicial or otherwise) is instituted on any mortgage or lien of any kind encumbering any portion of the Mortgaged Property.
Remedies
(a) Upon the occurrence of an Event of Default, the Master Trustee shall have the right to exercise all rights and remedies provided by law or in equity to which the Master Trustee is entitled, including, without limiting the generality of the foregoing, the right to declare the Indebtedness and all sums due or to become due under the Mortgage and the Master Indenture to be accelerated and to be due and payable in full.
(b) Upon the occurrence of any one or more Events of Default, the Master Trustee may, in addition to any rights or remedies available to it under the Mortgage and to the extent permitted by applicable law, take such action personally or by its agents or attorneys, with or without entry, and without notice, demand, presentment or protest (each and all of which are hereby waived), as it deems necessary or advisable to protect and enforce its rights and remedies against the Corporation and in and to the Mortgaged Property, including the following actions, each of which may be pursued concurrently or otherwise, in its sole discretion, without impairing or otherwise affecting its other rights or remedies, subject to State and federal law:
(i) declare the entire balance of the Indebtedness to be immediately due and payable, and upon any such declaration, the entire unpaid balance of the Indebtedness shall become and be immediately due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by the Corporation; or
(ii) institute a proceeding or proceedings, judicial or otherwise, for the complete or partial foreclosure of the Mortgage under any applicable provision of law; or
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(iii) sell (the power of sale, if permitted and provided by applicable law, being expressly granted by the Corporation to the Master Trustee) the Mortgaged Property, and all estate, right, title, interest, claim and demand of the Corporation therein, and all rights of redemption thereof, at one or more sales, as an entirety or in parcels, with such elements of real and/or personal property, and at such time and place and upon such terms as it may deem expedient, or as may be required by applicable law, and in the event of a sale, by foreclosure or otherwise, of less than all of the Mortgaged Property, the Mortgage shall continue as a lien and security interest on the remaining portion of the Mortgaged Property; or
(iv) apply (without notice, to the extent applicable law permits) for the appointment of a receiver, custodian, trustee, liquidator or conservator of the Mortgaged Property to be vested with the fullest powers permitted under applicable law, as a matter of right and without regard to, or the necessity to disprove, the adequacy of the security for the Indebtedness or the solvency of the Corporation or any other person liable for the payment of the Indebtedness, and the Corporation and each such person liable for the payment of the Indebtedness consent or shall be deemed to have consented to such appointment; or
(v) enter upon the Mortgaged Property, and exclude the Corporation and its agents and servants wholly therefrom, without liability for trespass, damages or otherwise, and take possession of all books, records and accounts relating thereto and all other Mortgaged Property, and the Corporation agrees to surrender possession of the Mortgaged Property and of such books, records and accounts to the Master Trustee on demand after the happening of any Event of Default; and having and holding the same may use, operate, manage, preserve, control and otherwise deal therewith and conduct the business thereof, either personally or by its superintendents, managers, agents, servants, attorneys or receivers, without interference from the Corporation; and upon each such entry and from time to time thereafter the Master Trustee may, at the expense of the Corporation and the Mortgaged Property, without interference by the Corporation and as the Master Trustee may deem advisable, (A) insure or reinsure the Mortgaged Property, (B) make all necessary or proper repairs, renewals, replacements, alterations, additions, betterments and improvements thereto and thereon and (C) in every such case in connection with the foregoing have the right to exercise all rights and powers of the Corporation with respect to the Mortgaged Property, either in the Corporation’s name or otherwise; or
(vi) with or without the entrance upon the Mortgaged Property, collect, receive, sue for and recover it in its own name all rents, revenues, profits and cash collateral derived from the Mortgaged Property, and after deducting therefrom all costs, expenses and liabilities of every character incurred by the Master Trustee in controlling the same and in using, operating, managing, preserving and controlling the Mortgaged Property, and otherwise in exercising the Master Trustee rights under the Mortgage, including all amounts necessary to pay Impositions, insurance premiums and other charges in connection with the Mortgaged Property, as well as compensation for the services of the Master Trustee and its respective attorneys, agents and employees, to apply the remainder as provided in the Mortgage and in the Master Indenture; or
(vii) release any portion of the Mortgaged Property for such consideration as the Master Trustee may require without, as to the remainder of the Mortgaged Property, in any being deemed to have impaired or affected the position of any subordinate lienholder with respect thereto, except to the extent that the Indebtedness shall have been reduced by the actual monetary consideration, if any, received by the Master Trustee for such release and applied to the Indebtedness, and may accept by assignment, pledge or otherwise any other property in place thereof as the Master Trustee may require without being accountable for so doing to any other lienholder; or
(viii) take all actions permitted under the Uniform Commercial Code in effect in the State of Ohio; or
(ix) cure any breach or default by the Corporation at the Corporation's cost; or
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(x) take any other action, or pursue any other right or remedy, as the Master Trustee may have under applicable law, and the Corporation does hereby grant the same to the Master Trustee.
(c) Any term of the Mortgage, the Master Indenture or of any related document to the contrary notwithstanding, and notwithstanding an agreement of indemnity, the Master Trustee shall have no responsibility, obligation or duty to enter upon, or otherwise take possession or control of, the Mortgaged Property, or take any other action which could constitute taking possession or control of the Mortgaged Property, (i) if it will require the approval of government regulator that cannot be obtained, (ii) until the Master Trustee will be indemnified to its satisfaction, and (iii) until the Master Trustee shall be satisfied, in its sole discretion and determination, that neither it nor the trusts created hereby shall incur, by reason of such action, any personal liability under any federal or State law for hazardous wastes, hazardous materials or other environmental liabilities. If the Master Trustee believes it prudent or appropriate prior to taking any action with respect to possession or control of the Mortgaged Property, the Master Trustee may contract for, at the expense of the Corporation, an environmental inspection of the Mortgaged Property.
Costs and Expenses
At any time after the occurrence of an Event of Default, the Master Trustee shall have the right to foreclose the lien of the Mortgage in whole or in part, or in successive partial foreclosure actions, as the Indebtedness becomes due (if not previously accelerated). In any suit to foreclose such lien, there shall be allowed and included as additional Indebtedness in the decree of sale, to the extent permitted by law, all expenditures and expenses that may be paid or incurred by or on behalf of the Master Trustee for attorneys’ fees, court costs, appraisers’ fees, sheriff’s fees, documentary and expert evidence, stenographers’ charges, publication costs and such other costs and expenses as the Master Trustee may deem reasonably necessary to prosecute such suit or to evidence to bidders at any sale that may be had pursuant to such decree the true condition of the title to or the value of the Mortgaged Property. To the extent permitted by law, all such expenditures and expenses shall become additional Indebtedness secured hereby and shall be due and payable on demand with interest thereon from the date of expenditure at the Default Rate and in addition shall include expenditures and expenses incurred by the Master Trustee in connection with (a) a foreclosure proceeding; (b) any proceeding to which the Master Trustee shall be a party, either as plaintiff, claimant or defendant, by reason of the Mortgage or any of the Indebtedness; (c) preparations for the commencement of any suit for foreclosure hereby after accrual of such right to foreclosure, whether or not actually commenced; (d) preparation for the defense or prosecution of or investigation of any threatened suit, claim or proceeding that might affect the Mortgaged Property, whether or not actually commenced, or (e) the expense of securing, preserving, repairing, protecting or improving the Mortgaged Property in connection with the Mortgage.
Proceeds
The proceeds received by the Master Trustee in any foreclosure sale of the Mortgaged Property shall be distributed and applied in the following order of priority: first, on account of all costs and expenses incident to the foreclosure proceedings; second, to all other items which under the terms of the Mortgage constitute Indebtedness or Impositions or are otherwise secured by the Mortgage; and, third, any surplus to the Corporation, its legal representatives or assigns, or to third persons with rights in the Mortgaged Property, as their rights may appear.
Receiver
In addition to any other rights set forth in the Mortgage, upon, or at any time after, the filing of a suit to foreclose the Mortgage, the Master Trustee shall be entitled to have a court appoint a receiver of the Mortgaged Property. Such appointment may be made either before or after sale, without notice to the Corporation or any other person, without regard to the solvency of the person or persons, if any, liable for the payment of the Indebtedness and without regard to the then value of the Mortgaged Property, and the Master Trustee may be appointed as such receiver. The receiver shall have the power to collect the rents, issues and profits of the Mortgaged Property during the pendency of such foreclosure suit, as well as during any further times when the Master Trustee, absent the intervention of such receiver, would be entitled to collect such rents, issues and profits, and all other powers which may be necessary or are usual in such cases for the protection, possession, control, management and operation of the Mortgaged Property during the whole of such period. The court from time to time may authorize the receiver to apply net income in the receiver’s hands in payment in whole or in part of the Indebtedness, or in payment of any Imposition or other tax, assessment or other lien that may be or become superior to the lien of the Mortgage or superior to a decree foreclosing the Mortgage.
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Rights Cumulative
The rights of the Master Trustee arising under the provisions and covenants contained in the Mortgage and the Master Indenture shall be separate, distinct and cumulative and none of them shall be exclusive of the others. In addition to the rights set forth in the Mortgage, the Master Trustee shall have all rights and remedies now or hereafter existing at law or in equity or by statute. the Master Trustee may pursue its rights and remedies concurrently or in any sequence, and no act of the Master Trustee shall be construed as an election to proceed under any one provision in the Mortgage or in such other documents to the exclusion of any other provision, anything herein or otherwise to the contrary notwithstanding. If the Corporation fails to comply with the Mortgage, no remedy of law will provide adequate relief to the Master Trustee, and the Master Trustee shall be entitled to temporary and permanent injunctive relief without the necessity of proving actual damages.
No Merger
If the Master Trustee shall at any time hereafter acquire title to all or any portion of the Mortgaged Property, then, and until the Indebtedness secured by the Mortgage has been paid in full and a release or satisfaction of mortgage executed by the Master Trustee and properly filed, the interest of the Master Trustee under the Mortgage and the lien of the Mortgage shall not merge or become merged in or with the estate and interest of the Master Trustee as the holder and owner of title to all or any portion of the Mortgaged Property, and that, until such payment, the estate of the Master Trustee in the Mortgaged Property, and the lien of the Mortgage and the interest of the Master Trustee hereunder shall continue in full force and effect to the same extent as if the Master Trustee had not acquired title to all or any portion of the Mortgaged Property. Furthermore, if the estate of the Corporation shall be a leasehold, unless the Master Trustee shall otherwise consent, the fee title of the Mortgaged Property leased shall not merge but shall always be kept separate and distinct, notwithstanding the union of said estates by purchase or otherwise. If, however, the Master Trustee shall be requested to and/or shall consent to such merger or such merger shall nevertheless occur without its consent, then the Mortgage shall attach to and cover and be a lien upon the fee title or any other estate, title or interest in the Mortgaged Property demised under the ground lease acquired by the fee owner and the same shall be considered as mortgaged to the Master Trustee and the lien hereof spread to cover such estate with the same force and effect as though specifically granted in the Mortgage.
Waivers of Corporation
The Corporation waives any right to require marshaling of assets in connection with enforcement of the Indebtedness and any right to require the sale of the Mortgaged Property in whole or in parcels or to select the order in which parcels are to be sold.
SUMMARY OF THE TAX EXEMPTION AGREEMENT
The Tax Exemption Agreement contains covenants and provisions relating to compliance with provisions of the Code governing the exclusion of interest on the Series 2014 Bonds from the gross income of the recipients thereof for federal income tax purposes, including covenants and provisions relating to (i) ownership of the Existing Facilities by a governmental entity or an organization described in Section 501(c)(3) of the Code; (ii) the weighted average maturity of the Series 2014 Bonds as compared to the reasonably expected economic life of the property financed or refinanced by the proceeds of the Series 2014 Bonds; (iii) use of the proceeds of the Series 2014 Bonds in a manner which would cause the Series 2014 Bonds to be "arbitrage bonds;" (iv) limitations on the amount of the reserve fund or any replacement fund attributable to the Series 2014 Bonds; (v) compliance with the arbitrage rebate requirements of the Code; (vi) compliance with the public approval requirements of the Code; (vii) limitation on the use of proceeds of the Series 2014 Bonds to pay costs of issuance; and (viii) compliance with the information reporting requirements of the Code.
SUMMARY OF THE REIMBURSEMENT AGREEMENT
The Reimbursement Agreement has been entered into between the Corporation and the PNC Bank, National Association (the "Bank"), and provides for the issuance of the letter of credit supporting the Series 2004A Bonds. Capitalized terms used under this "SUMMARY OF THE REIMBURSEMENT AGREEMENT" shall have the meanings given such terms below, provided that capitalized terms used under this heading and not defined below shall have the meanings given such terms elsewhere in this Appendix C.
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Definitions
"Affiliate" means a Person who directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, the Corporation. As used in this definition, the term "control" (including the terms "controlling", "controlled by" and "under common control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of the Corporation, or of the Person or the board of directors or other governing body of the Person, whether through stock ownership, partnership interests, membership, voting rights, governing boards, committees, divisions or other bodies with one or more common members, directors, trustees or other managers, or otherwise.
"Available Amount" has the meaning given to it in the Letter of Credit, generally the stated amount of the Letter of Credit being the outstanding principal amount of the Series 2004A Bonds plus 35 days of interest at the maximum interest rate of 10%, less the amounts of prior reductions pursuant to interest, redemption/maturity, liquidity or acceleration drawings, but plus the amount of automatic reinstatements attributable to interest drawings.
"Bank Obligations" means and includes all reimbursement obligations, interest payment obligations and other loan or advance repayment obligations, fee payment obligations, indemnity obligations, cost payment obligations, debts, liabilities, contingent obligations, other obligations, covenants and duties owing by the Corporation to the Bank of any kind or nature, present or future, arising under the Reimbursement Agreement or any other Financing Document. Such term includes, without limitation, all principal, interest, fees, charges, expenses, indemnity, attorneys’ fees and any other sums chargeable to the Corporation by the Bank under the Reimbursement Agreement or any other Financing Document.
"Bond Documents" means the Series 2004A Bonds, the Series 2004A Bond Indenture, the Series 2004A Lease, the Series 2004A Sublease, the Series 2004A Remarketing Agreement, and any other agreements or instruments relating to the foregoing.
"Capital Lease" means, at any time, a lease with respect to which the lessee is required to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP.
"Days Cash-On-Hand" means the number determined twice per year on the last day of each fiscal half-year by dividing (A) the amount of Unrestricted Cash on hand as of such day (determined based upon the Corporation’s financial statements prepared and furnished to the Bank), but excluding all cash and marketable securities held in any fund established under the Indenture or otherwise pledged to secure Indebtedness or other obligations of the Corporation other than operating expenses, by (B) the quotient of (i) operating expenses of the Corporation for the twelve month period ending on such date less, to the extent included in such operating expenses, all depreciation and all amortization payable during such period divided by (ii) 365.
"Debt Service Coverage Ratio" means, for any specified period, the ratio of (i) the sum of Net Income Available for Debt Service plus Entrance Fees actually received (net of refunds) other than Initial Entrance Fees, to (ii) Maximum Annual Debt Service on all outstanding Long-Term Indebtedness.
"Debt Service Requirement" means, for any period of time for which calculated, the aggregate of the payments required to be made during such period in respect of principal (whether at maturity, as a result of scheduled mandatory redemption, scheduled mandatory prepayment, optional redemption or otherwise) and interest on Long-Term Indebtedness of the Corporation and letter of credit and remarketing fees related thereto, in each case, payable by the Corporation; provided that:
(a) such payments are excluded from the Debt Service Requirement to the extent that cash or escrow obligations are on deposit in an irrevocable escrow or trust account and such amounts (including, where appropriate, the earnings or other increment to accrue thereon) are required to be applied to pay such principal or interest and are sufficient to pay such principal or interest;
(b) principal of Long-Term Indebtedness shall be excluded from the last principal maturity of that Long-Term Indebtedness to the extent moneys were initially deposited into a debt service reserve fund which required that moneys on deposit in the debt service reserve fund on the due date of that last principal maturity be used to pay the last principal maturity of that Long-Term Indebtedness if, after exclusion of that principal, that Long-Term Indebtedness would have approximately level debt service at the time of its issuance or incurrence; and
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(c) in determining the debt service on any Long-Term Indebtedness which provides for interest to be payable thereon at a rate per annum that may vary from time to time over the term thereof in accordance with procedures provided in the instrument creating such Long-Term Indebtedness and which for any future period of time is not susceptible of precise determination, the interest rate on such Indebtedness for any period prior to the date of calculation or for which the interest rate has been determined shall be the actual interest payable during such period, and for each year in which such Long-Term Indebtedness is outstanding and for which the actual interest rate cannot be determined, the interest rate on such Long-Term Indebtedness for the period of determination shall be deemed to be the average annual rate of interest payable on such Indebtedness during the 12 months immediately preceding the date of calculation, or if such Long-Term Indebtedness is to be incurred or was incurred less than 12 months preceding such date, the initial rate or the average annual rate of interest payable on such Long-Term Indebtedness during such period immediately preceding the date of calculation.
"Entrance Fees" means the fees, other than monthly service charges, paid by residents of the Facilities to the Corporation for the purpose of obtaining the right to reside in the Facilities, including any refundable resident deposits described in any lease or similar residency agreements with respect to the Facilities but shall not include any such amounts that are escrowed or otherwise set aside pursuant to the requirements of any such agreement prior to the occupancy of the unit covered by such agreement (which amounts shall be included if and when such occupancy occurs).
"Expiration Date" shall have the meaning ascribed to such term in the Letter of Credit, which currently is July 15, 2018 but may be extended at the discretion of the Bank.
"Facilities" means the health care and related facilities, including but not limited to Hospital Facilities, owned or operated at any time by the Corporation.
"Fee Letter" means the letter from the Bank and accepted by the Corporation, and any amended or replacement letters that the Bank and Corporation agree upon, providing, among other things, for certain fees to be paid by the Corporation to the Bank pursuant to the Reimbursement Agreement.
"Financing Documents" means the Reimbursement Agreement, the Note, the Fee Letter, the Bond Documents and the Security Documents.
"GAAP" means generally accepted accounting principles consistently applied.
"Governmental Authority" means any nation or government, state or other political subdivision thereof and any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government.
"Guaranty" means an agreement by any Person to act as guarantor or surety of the Indebtedness of another Person (or having the economic effect of directly or indirectly guaranteeing or becoming surety for such Indebtedness), which agreement is not categorized as a direct liability of the guarantor under GAAP.
"Hospital Facilities" has the meaning given to it in the Act.
"Indebtedness" means, without duplication, as to any Person, (a) indebtedness created, issued or incurred by such Person for borrowed money (whether by loan or the issuance or sale of debt securities) whether or not recourse is limited to specific assets of such Person; (b) obligations of such Person to pay the deferred purchase or acquisition price of property or services, other than trade accounts payable arising in the ordinary course of business so long as such trade accounts payable are not for borrowed money and are paid within 60 days of the date the respective goods are delivered or the respective services are rendered (except for any such trade account payable being contested in good faith); (c) indebtedness of another secured by a lien of such property of such Person, whether or not the indebtedness so secured has been assumed by such Person; (d) reimbursement obligations of such Person in respect of letters of credit, acceptances or similar instruments issued or accepted by banks and other financial institutions for the account of such Person; (e) Capital Lease obligations of such Person as determined in accordance with GAAP; (f) Guaranties by such Person; (g) net liabilities of such Person under interest rate collar agreements, interest rate swap agreements, foreign currency exchange agreements, netting agreements and other hedging agreements or arrangements (calculated on a basis satisfactory to the Bank and in accordance with accepted
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practice); (h) obligations for unfunded pension liabilities; and (i) accrued reserves for insurance (including self insurance) and other liabilities.
"Initial Entrance Fees" means Entrance Fees received upon the initial occupancy of any new living unit not previously occupied by any resident.
"Letter of Credit" means the letter of credit issued by the Bank supporting the Series 2004A Bonds.
"Lien" means any interest in property securing an obligation owed to, or a claim by, a Person other than the owner of the property, whether such interest is based on statute or contract, and including but not limited to any security interest or lien arising from a mortgage, encumbrance, pledge, conditional sale or trust receipt or any lease, consignment or bailment for security purposes, and the Corporation shall be deemed to be the owner of any property which it has acquired or holds subject to a conditional sale agreement or other arrangement pursuant to which title to the property has been retained by or vested in some other Person for security purposes.
"Liquidity Period" means the period beginning on the date of the issuance of the Letter of Credit and ending on the Expiration Date.
"Long Term Indebtedness" means all Indebtedness (other than any Indebtedness of the types described in clauses (h) and (i) of the definition thereof) having an original term, or renewable at the option of the Corporation or other obligor thereon for a period from the date originally incurred, longer than one year; provided, however, that any Guaranty by the Corporation of any obligation of any Person which obligation would, if it were a direct obligation of the Corporation, constitute Short Term Indebtedness shall be excluded, except that Short Term Indebtedness and any Guaranty thereof shall be included in Long-Term Indebtedness if a commitment by a financial lender exists to provide financing to retire such Short Term Indebtedness and such commitment provides for the repayment of principal on terms which would, if the commitment were implemented, constitute Long Term Indebtedness). Long Term Indebtedness shall be calculated in such a manner that there will not be, in effect, any double counting. For example, where the Corporation is obligated under a line of credit, letter of credit agreement, standby bond purchase agreement or similar credit enhancement or liquidity facility established in connection with the issuance of any Indebtedness, such Indebtedness shall not be counted as Long Term Indebtedness to the extent that such credit enhancement or liquidity facilities have been used or drawn upon to purchase, but not retire, such Indebtedness and to the extent that such credit enhancement or liquidity facility has been counted as Long Term Indebtedness.
"Material Adverse Effect" shall mean a material adverse effect on (a) the validity or enforceability of the Reimbursement Agreement or any Bond Document; (b) the business, properties, assets, financial condition, results of operations or prospects of the Corporation; (c) the ability of the Corporation to duly and punctually pay or perform its obligations under the Reimbursement Agreement, any other Financing Document or any other Material Contract; (d) the ability of the Bank, to the extent permitted, to enforce its legal remedies pursuant to the Reimbursement Agreement; or (e) the status of the Corporation as an organization described in Section 501(c)(3) of the Code.
"Maximum Annual Debt Service" means, with respect to any Indebtedness of the Corporation, the maximum Debt Service Requirement with respect to such Indebtedness for the current or any future Fiscal Year.
"Net Income Available for Debt Service" means, with respect to any specified period, (a) the Corporation’s total change in unrestricted net assets for such period determined in accordance with GAAP (determined in a manner consistent with the most recent audited financial statements delivered to the Bank), plus (b) depreciation expense, amortization of financing charges and other non-cash expenses taken into account in determining the Corporation’s total change in unrestricted net assets, plus (c) interest expense (including credit facility and liquidity facility fees, remarketing agent fees and any net payment expenses under any Qualified Exchange Agreement) on Long-Term Indebtedness, except to the extent such expenses are capitalized or payable from the proceeds of Long-Term Indebtedness, and excluding (d) any unrealized gains or losses on investments or derivative instruments, any extraordinary items, any gain or loss resulting from the extinguishment of debt or the sale, exchange or other disposition of assets not made in the ordinary of business, any other non-cash revenues, and gifts (and income thereon) subject to restrictions inconsistent with their application to payment of Debt Service Requirements.
"Note" means the Reimbursement Note from the Corporation to the Bank.
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"Permitted Encumbrances" means the encumbrances represented by any of the Financing Documents and, as of any particular time:
(i) Liens for taxes not yet due and payable or which are being contested in good faith by appropriate proceedings diligently pursued, provided that (x) any proceedings commenced for the enforcement of such Liens shall have been stayed or suspended within 30 days of the commencement thereof and (y) provision for the payment of all such taxes known to such Person has been made on the books of the Corporation to the extent required by generally accepted accounting principles;
(ii) mechanics', processor's, materialmen's, carriers', warehouse-men's, landlord's and similar Liens (including statutory and common law landlords' liens under leases to which the Corporation is a party) arising by operation of law and arising in the ordinary course of business and securing obligations of the Corporation that are not overdue for a period of more than 90 days or are being contested in good faith by appropriate proceedings diligently pursued, provided that (x) any proceedings commenced for the enforcement of such Liens shall have been stayed or suspended within 30 days of the commencement thereof and (y) provision for the payment of such Liens has been made on the books of the Corporation to the extent required by generally accepted accounting principles;
(iii) Liens arising in connection with worker's compensation, unemployment insurance, old age pensions and social security benefits which are not overdue or are being contested in good faith by appropriate proceedings diligently pursued, provided that (x) any proceedings commenced for the enforcement of such Liens shall have been stayed or suspended within 30 days of the commencement thereof and (y) provision for the payment of such Liens has been made on the books of the Corporation to the extent required by generally accepted accounting principles;
(iv) Liens (x) incurred or deposits made in the ordinary course of business to secure the performance of bids, tenders, statutory obligations, fee and expense arrangements with trustees and fiscal agents (exclusive of obligations incurred in connection with the borrowing of money or the payment of the deferred purchase price of property) and customary deposits granted in the ordinary course of business under leases and (y) securing surety, indemnity, performance, appeal and release bonds, provided that full provision for the payment of all such obligations has been made on the books of the Corporation to the extent required by generally accepted accounting principles;
(v) such Liens, defects, irregularities of title and encroachments on adjoining property as normally exist with respect to property similar in character to the Property involved and which do not materially adversely affect the value of, or materially impair, the Property affected thereby for the purpose for which it was acquired or is held by the owner thereof, including without limitation statutory liens granted to banks or other financial institutions, which liens have not been specifically granted to secure Indebtedness and which do not apply to Property which has been deposited as part of a plan to secure Indebtedness;
(vi) Liens, encumbrances and other matters affecting title to any Mortgaged Property listed in the applicable title policy in respect thereof (or any update thereto) and found, on the date of delivery of such title policy to the Master Trustee in accordance with the terms of the Reimbursement Agreement, acceptable by the Bank, (ii) municipal and zoning laws, regulations, codes and ordinances, which are not violated in any material respect by the existing improvements and the present use made by the mortgagor or owner, as the case may be, of such real property, and (iii) general real estate taxes and assessments not yet delinquent, and (iv) such other items as the Bank may consent to;
(vii) utility, access and other easements and rights-of-way, restrictions, encumbrances and exceptions which do not materially interfere with or materially impair the operation of the Property affected thereby (or if such Property is not being then operated, the operation for which it was designed or last modified);
(viii) statutory rights under Section 291, Title 42 of the United States Code, as a result of what are commonly known as Hill-Burton grants, and similar rights under other federal statutes or statutes of the state in which the Property is located;
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(ix) all right, title and interest of the state where the Property involved is located, municipalities and the public in and to tunnels, bridges, and passageways over, under and upon a public way;
(x) Liens on or in property given, granted, bequeathed or devised by the owner thereof existing at the time of such gift, grant, bequest or devise; provided that (i) such Liens consist solely of restrictions on the use thereof or the income therefrom, or (ii) such Liens secure Indebtedness which is not assumed by the Corporation and such Liens attach solely to the property (including the income therefrom) which is the subject of such gift, grant, bequest or devise;
(xi) Liens on moneys deposited by residents or others with the Corporation as security for or as prepayment of the cost of patient care or any rights of residents of life care, elderly housing or similar facilities to endowment or similar funds deposited by or on behalf of such residents; and
(xii) Liens on property due to rights of third party payors for recoupment of excess reimbursement paid.
"Permitted Indebtedness" means:
(i) current liabilities of the Corporation, arising in the ordinary course of business, other than for borrowed money or installment sales or similar contracts;
(ii) Indebtedness of the Corporation secured by purchase money Liens;
(iii) Indebtedness evidenced by adjustable rate revenue bonds issued pursuant to the Series 2004A Bond Indenture and secured by a letter of credit issued by the Bank;
(iv) Indebtedness of the Corporation evidenced by the Series 2014 Bonds;
(v) Short-Term Indebtedness without limit for any purpose, so long as (1) the aggregate amount of such Short-Term Indebtedness at any one time outstanding does not exceed 10% of Revenues for the most recent Fiscal Year for which audited financial statements of the Corporation are available, and (2) the aggregate amount of such Short-Term Indebtedness shall be reduced during each twelve-month period following the incurrence of such Short-Term Indebtedness either (A) to zero for a period of seven (7) consecutive days or (B) to an amount not exceeding 5% of Revenues (for the most recent Fiscal Year for which audited financial statements of the Corporation are available) for a period of at least thirty (30) consecutive days;
(vi) Long-Term Indebtedness to finance capital expenditures if before incurrence thereof or, if such Long-Term Indebtedness was incurred in accordance with another subsection of this definition of "Permitted Indebtedness" and the Corporation wishes to have such Indebtedness reclassified as having been issued under this subsection (vi), prior to such reclassification, there is delivered to the Bank a certificate of an independent certified public accountant demonstrating each of (A) that the historical proforma Debt Service Coverage Ratio, after giving effect to the incurrence of such Indebtedness, for the most recent Fiscal Year for which audited financial statements of the Corporation are available was not less than 1.30; and (B) that the projected Debt Service Coverage Ratio is not less than 1.30 for each of the first two Fiscal Years following (i) in the case of acquisition, construction, renovation or replacement of revenue-producing facilities being financed in whole or in part with the proceeds of such Long-Term Indebtedness, if Stable Occupancy is projected in the certificate of such independent certified public accountant to occur no later than during the fifth full Fiscal Year following the incurrence of such Long-Term Indebtedness, interest on such Long-Term Indebtedness and start-up losses for those facilities are funded from the proceeds of such Long-Term Indebtedness or other funds designated for that purpose until Stable Occupancy is projected to occur and no principal of such Long-Term Indebtedness is scheduled to come due during that period except Indebtedness that comes due as the result of the collection of initial Entrance Fees during that period, the Fiscal Year in which Stable Occupancy is projected in such certificate to occur, (ii) in any other case in which the Long-Term Indebtedness is being incurred to finance the acquisition, construction, renovation or replacement of facilities, if interest on such Long-Term Indebtedness and start-up losses for those facilities are funded from the proceeds of such Long-Term Indebtedness or other funds designated for that purpose until completion of those facilities is projected to occur and no principal of such Long-Term Indebtedness
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is scheduled to come due during that period, the Fiscal Year in which those facilities are projected to be completed, or (iii) in any other case, the Fiscal Year in which the Long-Term Indebtedness is to be incurred; or
(vii) Refunding Indebtedness for the purpose of refunding (whether in advance of maturity or otherwise) any outstanding Long-Term Indebtedness, if the Maximum Annual Debt Service for all Long-Term Indebtedness of the Corporation, after giving effect to the issuance of the Refunding Indebtedness and the application of the proceeds thereof, is not more than 110% of the Maximum Annual Debt Service for all Long-Term Indebtedness of the Corporation immediately before the issuance of the Refunding Indebtedness.
"Person" means any individual, for profit or not for profit corporation, limited liability company, partnership, joint venture, association, joint stock company, trust, unincorporated organization or government or any agency or political subdivision thereof.
"Property" means any and all land, leasehold interests, buildings, machinery, equipment, hardware, and inventory of the Corporation wherever located and whether now or hereafter acquired, any and all rights, titles and interests in and to any and all property whether real or personal, tangible or intangible or wherever situated and whether now or hereafter acquired and shall include all revenues, receipts or other moneys, or right to receive any of the same, including, without limitation, the Corporation’s Gross Revenues, accounts, and general intangibles, and all proceeds of all of the foregoing.
"Qualified Counterparty" means any person entering into any Qualified Exchange Agreement with the Corporation which, at the time of the execution of such Qualified Exchange Agreement, (i) satisfies any applicable requirements of law and (ii) is rated at least "A" by Standard & Poor’s and is rated at least "A" by Moody’s and its successors and assigns.
"Qualified Exchange Agreement" means any financial arrangement between the Corporation and any Qualified Counterparty relating to an exchange of interest rates, cash flows or payments, as authorized by the laws of the State; provided that notice shall be given to Standard & Poor’s and Moody’s, if then rating the Series 2004A Bonds, in advance of the Corporation’s entering into any Qualified Exchange Agreement. For purposes of all calculations under the Reimbursement Agreement, any so called mark to market charge or credit attributable to any Qualified Exchange Agreement under Financial Accounting standard 133 or otherwise shall be excluded from calculation of the revenues and expenses and all related definitions and financial covenants herein.
"Refunding Indebtedness" means Long-Term Indebtedness issued for the purpose of refunding other Long-Term Indebtedness (including Long-Term Indebtedness commonly referred to as current refunding indebtedness, advance refunding indebtedness or cross-over refunding indebtedness where the proceeds of such Refunding Indebtedness are deposited in an irrevocable escrow or trust account to secure the payment on the applicable payment dates of the interest on and principal of such Refunding Indebtedness and/or the Indebtedness being refunded).
"Remarketing Agent" means Ziegler Capital Markets Group, a division of B.C. Ziegler and Company, and its successor for the time being in such capacity pursuant to the Series 2004A Bond Indenture.
"Remarketing Agreement" means the Remarketing Agent’s agreement with the Corporation to perform its duties as Remarketing Agent under the Series 2004A Bond Indenture.
"Security Documents" means, collectively, the Master Indenture, the Series 2004A LOC Note, the Mortgage and any other documents or instruments (including financing statements) evidencing or securing the obligations of the Corporation arising under any of the Financing Documents.
"Series 2004A Bond Indenture" means the Trust Indenture dated as of August 1, 2004 between the Issuer and the Series 2004A Trustee, pursuant to which the Series 2004A Bonds were issued, as it may be amended or supplemented from time to time.
"Series 2004A Bonds" means the $13,805,000 County of Franklin, Ohio Adjustable Rate Demand Health Care Facilities Revenue Refunding Bonds, Series 2004A (Friendship Village of Dublin, Ohio, Inc.).
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"Series 2004A Lease" means the Agreement of Lease dated as of August 1, 2004, between the Issuer and the Corporation, as it may be further supplemented and amended from time to time.
"Series 2004A Sublease" means the Sublease dated as of August 1, 2004, between the Issuer and the Corporation, as it may be further supplemented and amended from time to time.
"Series 2004A Trustee" means U.S. Bank National Association, as trustee under the Series 2004A Bond Indenture, and its successors and assigns.
"Short-Term Indebtedness" means all Indebtedness other than Long-Term Indebtedness and Indebtedness of the types described in clauses (h) and (i) of the definition thereof.
"Stable Occupancy" means, with respect to any facility financed with Long-Term Indebtedness for which the Bank was furnished a certificate of an independent certified public accountant pursuant to the Reimbursement Agreement, occupancy of that facility at the level reflected as stabilized occupancy for that facility in such certificate, which level shall be reasonably acceptable to the Bank but in no event less than 90% of the financed project’s units for one fiscal quarter, measured as of the end of such fiscal quarter.
"Unrestricted Cash" means cash, cash equivalents and investments (marked to market) shown as unrestricted assets on the books of the Corporation, including but not limited to Board designated funds.
General
The Reimbursement Agreement provides for the issuance of the Letter of Credit to support the Series 2004A Bonds. The Corporation agrees to pay periodic Letter of Credit fees to the Bank, and to reimburse the Bank for all draws on the Letter of Credit.
Covenants
The Corporation agrees in the Reimbursement Agreement to comply with a number of affirmative and negative covenants, including but not limited to the following:
Financial Covenants.
(a) Debt Service Coverage Ratio. The Corporation will maintain as of the end of each fiscal quarter of each Fiscal Year for the 12-month period then ended a Debt Service Coverage Ratio of at least 1.25 to 1.00.
(b) Minimum Days Cash-on-Hand. The Corporation will maintain, as of the last day of each fiscal half-year of each Fiscal Year, at least 250 Days Cash-on-Hand.
(c) Swap Agreements. The Corporation will not enter into any additional interest rate swap agreement or any other derivative transaction (including, without limitation, any Qualified Exchange Contract) without the prior written consent of the Bank.
Limitation on Additional Indebtedness. The Corporation will not at any time incur, create, assume, or suffer to exist any Indebtedness except for Permitted Indebtedness.
Limitation on Liens. The Corporation will not create, incur, assume or suffer to exist any Lien upon any of its Property, except for real property not subject to the Mortgage and except for Permitted Encumbrances.
Limitation on Sale of Assets. The Corporation will not convey, sell, lease, assign, transfer or otherwise dispose of any of its business, assets or other Property (including, without limitation, accounts receivables and leasehold interests), whether now owned or hereafter acquired, except:
(a) transactions in the ordinary course of business upon fair and reasonable terms;
(b) in return for other Property of equal or greater value or usefulness;
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(c) transactions involving Property which has become obsolete, inadequate, worn out, unsuitable or unnecessary in the judgment of the Corporation, provided that the sale, lease, removal or other disposition thereof will not materially impair the structural soundness, efficiency or economic value of its remaining Property;
(d) to any Person, if such Property consists solely of assets which are specifically restricted by the donor or grantor to a particular purpose which is inconsistent with their use for payment on Long-Term Indebtedness of the Corporation; and
(e) any sale, transfer or lease of assets having a fair market value not in excess of $750,000 in the aggregate in any Fiscal Year (i) which are replaced by like-kind assets or (ii) the proceeds of the sale of which are used within one-hundred and twenty (120) days of such sale to purchase like-kind assets.
If the Property to be disposed of is Property subject to the Mortgage, the Bank may, upon the request of the Corporation, consent to such release in accordance with the terms of the Master Indenture.
Transactions with Affiliates. The Corporation shall not directly or indirectly enter into any transaction or arrangement whatsoever or make any payment to or otherwise deal with any Affiliate, except (i) as otherwise expressly permitted in the Reimbursement Agreement, (ii) in the ordinary course of and pursuant to the reasonable requirements of its business and upon fair and reasonable terms no less favorable to it than would be obtained in a comparable arm’s length transaction with a Person not an Affiliate, and (iii) with respect to transactions with a limited liability company, the sole member of which is the Corporation, for the purposes of acquisitions and dispositions of residential and multi-family housing properties located adjacent to real property owned by the Corporation.
Changes in Business; Rates and Charges. The Corporation shall not enter into any business which is substantially different from or not reasonably related to that conducted by one or more of them on the date hereof. The Corporation will operate in such a manner and, to the extent permitted by law, fix, charge and collect rates, fees and charges for the use of the Facilities and for services provided by the Corporation, to produce sufficient funds so as to be at all relevant times in compliance with the provisions described above under "Financial Covenants".
Consents Under Bond Documents. The Corporation will obtain the consent of the Bank whenever it must obtain the consent of the Series 2004A Trustee under the Bond Documents.
Amendments to Bond Documents. The Corporation will not consent to or enter into any amendment of or supplement to the Bond Documents without the prior written consent of the Bank. The Corporation will not consent to or amend any Security Document except that Corporation may enter into agreements supplemental to the Master Indenture to issue Obligations (as defined in the Master Indenture) to secure Indebtedness permitted by the Reimbursement Agreement; provided, Corporation shall not issue or permit the issuance of an Obligation therefor that is an "Accelerable Instrument" as defined in the Master Indenture.
Limitation on Optional Calls and Conversions. The Corporation will not exercise its rights under the Bond Documents to direct the Issuer to call the Series 2004A Bonds for any optional redemption thereof unless the Corporation first demonstrates to the reasonable satisfaction of the Bank that at the time of such redemption the Bank will be fully reimbursed for all drawings on the Letter of Credit in connection with such redemption. The Corporation will not direct or permit the conversion or establishment of the interest rate on the Series 2004A Bonds to an interest rate other than the Weekly Interest Rate (as defined in the Series 2004A Bond Indenture), unless either (i) the Letter of Credit is being terminated in connection therewith and the Corporation demonstrates to the reasonable satisfaction of the Bank that at the time of such conversion the Bank will be fully reimbursed for all drawings on the Letter of Credit at or before such conversion or (ii) the Bank consents in writing to such conversion or establishment.
Investment Policy. The Corporation will not change, amend, vary or otherwise fail to conform to its current investment policy, guidelines and permitted investments without the Bank’s prior written consent.
Maintenance of Accounts. The Corporation agrees to cause a managed investment account (the "Investment Account") managed by, and held at, the Bank or one of its Affiliates. Initially the Investment Account was funded with $10,000,000 of cash and investments. The Corporation will maintain the Investment Account with the Bank or one of its Affiliates at all times until the Corporation has paid or fulfilled all Bank Obligations.
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Defaults and Remedies
Defaults. Each of the following shall constitute an event of default under the Reimbursement Agreement ("Event of Default"), provided that none of the following events shall constitute an Event of Default under the Reimbursement Agreement for purposes of the Series 2004A Bond Indenture unless the Bank declares the same in writing to be such an Event of Default:
(a) Failure by the Corporation to make or cause to be made when due any payment under the Reimbursement Agreement as (i) reimbursement for a drawing under the Letter of Credit, (ii) any original, Letter of Credit and additional fees payable pursuant to the Reimbursement Agreement or the Fee Letter, or (iii) interest on any such drawing or fees;
(b) Failure by the Corporation to pay any other Bank Obligation within 10 days of the date when it is due under the Reimbursement Agreement;
(c) Failure by the Corporation to perform or comply with any of the terms or conditions contained in certain covenant provisions of the Reimbursement Agreement, including provisions pertaining to conduct of business and maintenance of existence; amendments to Bond Documents and those provision summarized above under the caption "Covenants – Limitation on Sale of Assets", " - Limitation on Optional Calls and Conversions", " - Financial Covenants", " – Limitations on Additional Indebtedness" and "- Limitation on Liens";
(d) Failure by the Corporation to perform or comply with any of the other terms or conditions contained in the Reimbursement Agreement, the Fee Letter or any other Financing Document and continuance of such failure for thirty (30) days after the earlier of written notice from the Bank to the Corporation, or the Corporation has knowledge that such failure has occurred, and with respect to use of the word "knowledge" in this paragraph (d), "knowledge" means the conscious awareness of any individual who is a part of senior management of Corporation, including the controller;
(e) Any of the representations or warranties of the Corporation set forth in the Reimbursement Agreement or any of the Bond Documents or any other document furnished to the Bank by or on behalf of the Corporation pursuant to the terms of the Reimbursement Agreement proves to be false or misleading when made in any material respect;
(f) Any material provision of the Reimbursement Agreement or any other Financing Document shall at any time for any reason cease to be valid and binding on the Corporation, or is declared to be null and void, or is violative of any applicable law relating to a maximum amount of interest permitted to be contracted for, charged or received, or the validity or enforceability thereof is contested by the Corporation, the Issuer or any Governmental Authority, or the Corporation denies that it has any or further liability or obligation under the Reimbursement Agreement or any other Financing Document;
(g) Reserved;
(h) The Corporation (i) applies for or consents to the appointment of a receiver, trustee, liquidator or custodian or the like of the Corporation, or of the Corporation’s property, as the case may be or (ii) admits in writing the inability of the Corporation to pay its debts generally as they become due, or (iii) makes a general assignment for the benefit of creditors, or (iv) is adjudicated a bankrupt or insolvent, or (v) commences a voluntary case under the United States Bankruptcy Code or files a voluntary petition or answer seeking reorganization, an arrangement with creditors or an order for relief or seeking to take advantage of any insolvency law or files an answer admitting the material allegations of a petition filed against the Corporation, in any bankruptcy, reorganization or insolvency proceeding, or action of the Corporation, is taken for the purpose of effecting any of the foregoing, or (vi) has instituted against it, without the application, approval or consent of the Corporation, a proceeding in any court of competent jurisdiction, under any law relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking in respect of the Corporation, an order for relief or an adjudication in bankruptcy, reorganization, dissolution, winding up or liquidation, a composition or arrangement with creditors, a readjustment of debts, the appointment of a trustee, receiver, liquidator or custodian or the like of the Corporation, or of all or any substantial part of the assets of the Corporation, or other like relief in respect thereof under any bankruptcy or insolvency law, and, if such proceeding is being contested by the Corporation in good faith,
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the same (A) results in the entry of an order for relief or any such adjudication or appointment or (B) remains undismissed and undischarged for a period of 60 days, or (vii) the Corporation shall take any action in furtherance of, or indicating its consent to, approval of or acquiescence in any of the acts described in clause (i) through (vi) above;
(i) The Corporation fails to maintain in full force and effect the following insurance required pursuant to the Reimbursement Agreement and the Mortgage: fire and extended coverage insurance with respect to all Facilities, business interruption insurance with respect to all Facilities, general liability insurance and professional liability insurance;
(j) Any litigation or administrative proceeding ensues, and is not dismissed within 30 days, involving the Corporation or any instrument, contract or document delivered to the Bank in compliance with the Reimbursement Agreement, and in the Bank’s reasonable judgment (i) such litigation or proceeding is likely to be formally adjudicated adversely to the Corporation and (ii) the adverse result of such litigation or proceeding would have in the Bank’s reasonable opinion, a Material Adverse Effect;
(k) Any one or more judgments or orders are entered against the Corporation aggregating $1,000,000 or more and either (i) continue unsatisfied and unstayed for 30 days or (ii) a judgment lien on any property of the Corporation is recorded in respect thereof and is not stayed pending appeal by a bond or other arrangement given or obtained by the Corporation on terms which do not violate any of the Corporation’s covenants under the Reimbursement Agreement;
(l) The occurrence of any default or event of default with respect to any other credit arrangement under which the Corporation is indebted to the Bank, or under any other obligation owed by the Corporation to the Bank, which is not cured within any applicable notice or cure period;
(m) Any Governmental Authority (i) suspends or revokes a certificate of need or operating license for any of the Facilities, or does not renew such certificate or license prior to its then current expiration date, or (ii) takes any other action or imposes any other requirement as a sanction for failure to meet any Requirement of Law which could have a Material Adverse Effect, or the Corporation ceases to conduct its business, or is enjoined, restrained or in any way prevented by any order or directive of any Governmental Authority from conducting all or any material part of its business for more than 60 consecutive days;
(n) The Facilities or any portion thereof suffers a loss by fire or other material casualty, or is subjected to any condemnation or similar proceeding, which is reasonably likely to have a Material Adverse Effect;
(o) The independent certified public accountants retained by the Corporation (i) delivers an opinion on the financial statements of the Corporation, which opinion states that such financial statements do not fairly or accurately present the financial condition of the Corporation or includes an explanatory paragraph which describes conditions which raise substantial doubt about the Corporation’s ability to continue to operate as a going concern, or (ii) fails to deliver an unqualified opinion on the annual financial statements of the Corporation (other than as to a change in GAAP with which such certified public accountants concur); or
(p) The occurrence of any event or condition having a Material Adverse Effect.
Remedies. If an Event of Default has occurred under the Reimbursement Agreement and is continuing uncured, the Bank may:
(a) Notify the Series 2004A Trustee that such Event of Default has occurred, direct the Series 2004A Trustee to call the Series 2004A Bonds for mandatory purchase pursuant to the Series 2004A Bond Indenture, and notify the Series 2004A Trustee that the Letter of Credit will terminate 10 calendar days after the Series 2004A Trustee’s receipt of such notice;
(b) Notify the Series 2004A Trustee that such Event of Default has occurred, direct the Series 2004A Trustee to declare the Series 2004A Bonds immediately due and payable pursuant to the
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Series 2004A Bond Indenture, and notify the Series 2004A Trustee that the Letter of Credit will terminate 10 calendar days after the Series 2004A Trustee’s receipt of such notice;
(c) By written notice to the Corporation, the Series 2004A Trustee and the Remarketing Agent, terminate the Liquidity Period;
(d) Declare the Bank Obligations to be, whereupon the same shall become, immediately due and payable;
(e) Require the Corporation to deposit with the Bank as additional collateral for the Corporation’s obligations hereunder, cash, cash equivalents and marketable securities having a market value of not less than the Available Amount, as determined by the Bank;
(f) Take whatever action may be available at law or in equity to collect Bank Obligations due and payable and to enforce the performance of the Corporation’s obligations under the Reimbursement Agreement and the other Financing Documents;
(g) Direct the Series 2004A Trustee to exercise remedies in accordance with and subject to the provisions of the Bond Documents (in each case treating the Bank as the holder of all Series 2004A Bonds, including any Series 2004A Bonds purchased, redeemed or paid with the proceeds of a draw on the Letter of Credit for which related Bank Obligations are owing to the Bank);
(h) By injunction or other writ, order, decree or decision of a court of competent jurisdiction in an action, suit or other proceeding at law or in equity, enjoin any acts or things which may be unlawful or in violation of the Bank’s rights under the Reimbursement Agreement, any other Financing Document or any other agreement or instrument;
(i) Exercise any and all such rights as the Bank may have as a secured party under the Uniform Commercial Code of the State or other Applicable Law with respect to the security interests created by the Reimbursement Agreement or any other Financing Document; and in respect of any sale or other disposition under the Uniform Commercial Code of the State or other Applicable Law, any notice required to be given by the Bank shall be sufficient if given five (5) days prior to the day on which such sale or other disposition will be made, and such notice shall be deemed reasonable notice;
(j) Sell the Bank’s rights under the Reimbursement Agreement, the other Financing Documents, any other agreements or instruments delivered to the Bank to anyone at private sale; and
(k) Exercise, or cause to be exercised, any and all such remedies as it may have under the Reimbursement Agreement, any of the other Financing Documents or any other document or at law or in equity, including, without limitation, notify the Master Trustee of an Event of Default under the Reimbursement Agreement and direct, subject to the terms of the Master Indenture, the Master Trustee to accelerate the Series 2004A LOC Note.
Set Off. Upon the occurrence and during the continuance of any Event of Default, the Bank is authorized at any time and from time to time without notice to the Corporation (any such notice being expressly waived by the Corporation) and, to the fullest extent permitted by law, subject to the Master Indenture, to set off and to apply any and all balances, credits, deposits (general or special, time or demand, provisional or final), accounts or moneys at any time held and other indebtedness at any time owing by the Bank to or for the account of the Corporation against any and all of the Bank Obligations now or hereafter existing, whether or not the Bank shall have made any demand hereunder or thereunder and although such obligations may be contingent or unmatured. The rights of the Bank under this paragraph are in addition to other rights and remedies (including, without limitation, other rights of set off) which the Bank may have. Consistent with the Master Indenture, the Bank will not exercise its right of set-off against any amounts within the Investment Account.
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APPENDIX D
FORM OF OPINION OF BOND COUNSEL
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[Closing Date] County of Franklin, Ohio Columbus, Ohio B.C. Ziegler and Company Chicago, Illinois
U.S. Bank National Association as Master Trustee and Bond Trustee Columbus, Ohio
Ladies and Gentlemen:
We have examined the transcript of proceedings (the "Transcript") relating to the issuance by the County of Franklin, Ohio (the "Issuer"), acting by and through the County Hospital Commission of Franklin County (the "Commission"), of its $23,315,000 Health Care Facilities Revenue Refunding and Improvement Bonds, Series 2014 (Friendship Village of Dublin, Ohio, Inc.) dated the date hereof (the "Bonds"). The Bonds are issued and secured under the Indenture of Trust (Bond Indenture) dated as of December 1, 2014 (the "Bond Indenture") between the Issuer and U.S. Bank National Association, as trustee (the "Bond Trustee"). The proceeds of the Bonds will be made available from the Issuer to Friendship Village of Dublin, Ohio, Inc. (the "Corporation") pursuant to an Agreement of Lease dated as of December 1, 2014 (the "Lease") between the Corporation and the Issuer and a Sublease dated as of December 1, 2014 (the "Sublease") between the Issuer and the Corporation. The documents in the Transcript include, among other certificates, resolutions, documents and opinions, executed counterparts of the Lease, the Sublease, the Bond Indenture, and an Assignment of Rights Under Agreement of Lease and Sublease dated as of December 1, 2014 (the "Assignment") from the Issuer to U.S. Bank National Association, as master trustee. We have also examined an executed Bond of the first maturity. Capitalized terms used but not defined herein have the meaning given to them in the Bond Indenture.
The Bonds mature, bear interest and are redeemable all as provided in the Bond Indenture.
The Bonds are issued under authority of the general laws of the State of Ohio, particularly Chapter 140 and Section 339.15 of the Ohio Revised Code, and by virtue of a resolution of the Commission in relation thereto.
From such examination we are of the opinion that:
1. The Issuer is validly existing as a county and political subdivision under the laws of the State of Ohio with power and authority to issue the Bonds. The laws under which the Bonds are issued are constitutional and the proceedings regular and in due form.
2. The Lease, the Sublease, the Bond Indenture, and the Assignment are valid and binding obligations of the Issuer enforceable in accordance with their respective terms. The Issuer has full and lawful authority to provide, lease, sublease and cause to be operated and maintained the Existing Facilities as provided in the Sublease and the Bond Indenture.
3. The Bonds have been duly authorized, executed and delivered by the Issuer and are the valid and binding limited obligations of the Issuer enforceable in accordance with their terms. The
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principal of and interest and any premium on (collectively, "debt service") the Bonds are payable solely from the revenues and other moneys pledged and assigned by the Bond Indenture and the Assignment to secure that payment, including the payments required to be made by the Corporation under the Sublease and by the Members of the Obligated Group under the Series 2014 Note. The payment of debt service on the Bonds is not secured by an obligation or pledge of any money raised by taxation, and the Bonds do not represent or constitute a general obligation or a pledge of the faith and credit of the Issuer, the State of Ohio or any of its political subdivisions.
4. Under the laws, regulations, rulings and judicial decisions in effect as of the date hereof, interest on the Bonds is excludible from gross income for federal income tax purposes, pursuant to the Internal Revenue Code of 1986, as amended (the "Code"). Furthermore, interest on the Bonds will not be treated as a specific item of tax preference, under Section 57(a)(5) of the Code, in computing the alternative minimum tax for individuals and corporations; however, interest on the Bonds is included in adjusted current earnings for purposes of the corporate alternative minimum tax. The Bonds are "qualified 501(c)(3) bonds" within the meaning of the Code. We express no other opinion as to the federal tax consequences of purchasing, holding or disposing of the Bonds. The interest on the Bonds is exempt from the income base used in calculating the corporate franchise tax levied by Chapter 5733 of the Ohio Revised Code and from the Ohio personal income tax levied by Chapter 5747 of the Ohio Revised Code. Pursuant to Section 140.08 of the Ohio Revised Code, the Bonds, the transfer thereof, and the income therefrom, including any profit made on the sale thereof, are exempt from taxation within the State of Ohio.
In rendering all such opinions, we assume, without independent verification, and rely upon (i) the accuracy of the factual matters represented, warranted or certified in the proceedings and documents we have examined, (ii) the due and legal authorization, execution and delivery of those documents by, and the valid, binding and enforceable nature of those documents upon, any parties other than the Issuer, and (iii) the correctness of the legal conclusions contained in the legal opinion letter of Vorys, Sater, Seymour and Pease LLP, special counsel to the Obligated Group delivered in connection with this matter.
In rendering those opinions with respect to the treatment of the interest on the Bonds under the federal tax laws, we further assume and rely upon compliance with the covenants in the proceedings and documents we have examined, including those of the Issuer and the Corporation. Failure to comply with certain of those covenants subsequent to issuance of the Bonds may cause interest on the Bonds to be included in gross income for federal income tax purposes retroactively to their date of issuance.
We call your attention to the fact that the rights of the owners of the Bonds and the enforceability of the Bonds, the Lease, the Sublease, the Bond Indenture, and the Assignment are subject to bankruptcy, insolvency, fraudulent conveyance or transfer, reorganization, moratorium and other laws relating to or affecting creditors’ rights, to the application of equitable principles, to the exercise of judicial discretion, and to limitations on legal remedies against public entities.
We express no opinion with respect to any indemnification, contribution, penalty, choice of law, choice of forum, choice of venue, waiver or severability provisions contained in the Bonds, the Lease, the Sublease, the Bond Indenture or the Assignment. Furthermore, we express no opinion with respect to the status or quality of title to, or interest in, any of the real, personal or intangible property and other assets described in, or subject to, the pledge or lien granted in the Sublease, or the accuracy or sufficiency of the
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description contained therein of, or the priority of, or the remedies available to enforce, any pledge or lien on any such assets.
The opinions set forth above are expressly limited to the laws of the State of Ohio and the federal income tax laws of the United States of America. The opinions rendered in this letter are stated only as of this date, and no other opinion shall be implied or inferred as a result of anything contained in or omitted from this letter. Our engagement as bond counsel with respect to the Bonds has concluded on this date.
