Yesterday we reported that bond experts and bond investors were questioning the timing of the JobsOhio bond deal because of pending litigation, specifically the decision by the Ohio Supreme Court to rule on whether ProgressOhio has standing to sue.

The Court’s decision caused JobsOhio to delay the offering and to update their circular to include additional disclosures to investors about the lawsuit.  An updated copy of this circular is available at the end of this post.

While we’re still working our way through the entire document, there are a few important parts we’d like to highlight.

The first is the amount of money Kasich is going to get out of the deal.   Media outlets have been reporting for nearly a year that $500 Million would come back to the state a result of the bond sale, but the latest version of the circular (Page 22) seems to put that number at $600 Million.  Meaning Kasich will now have an extra $100 Million to help balance his budget and apply to his planned income tax break.

So when Kasich tells you he has an extra Billion Dollars in surplus, remember that the bulk of it came from him selling off $6 Billion in liquor profits for a one-time payment of $600 Million.  Not exactly a winning investment strategy for the state, but a great idea if all you want to do is get elected for another four year term as Governor.

The second key point is the long list of risk factors for investors (starting on page 56) identified in the document.  These include:

  • Litigation (the outstanding ProgressOhio case)
  • Bondholders May Have Difficulty Selling the Bonds In Any Secondary Market.
  • The Bonds may not be a suitable investment for all investors.
  • General Economic Conditions may affect the profitability of the Liquor Enterprise.
  • Changes in consumer preferences or discretionary consumer spending may affect the profitability of the Liquor Enterprise.
  • The Ohio General Assembly may propose and enact an increase of the gallonage tax on spirituous liquor.
  • The loss of management personnel or management services could have an adverse impact upon the Issuer’s business and its ability to service the debt.
  • The Issuer will be relying upon the Division to provide services under the Services Agreement.
  • The Issuer has no history of managing the Liquor Enterprise, or any state liquor enterprise.
  • Redemption may adversely affect your return on the Series 2013A Bonds.
  • Holders of the Bonds may be dependent on the action or inaction of other holders of the Bonds or other Obligations.

While all of these risk factors are serious, the one that caught my eye was about management personnel.  The full text of the risk description reads like this:

The loss of management personnel or management services could have an adverse impact upon the Issuer’s business and its ability to service the debt.

The Issuer’s success depends in large part upon its management personnel and the management personnel of JobsOhio. The loss of services of key personnel could have a material adverse effect on the Issuer’s ability to
effectively manage its business and sell its products. There can be no assurance that the Issuer will be successful in attracting or retaining qualified executives and personnel.

I noticed this one because Mark Kvamme, the Venture Capital Guru who helped found JobsOhio, left JobsOhio back in October.  And yet his name is included multiple times in attachements to this document under the title “Interim President and Chief Investment Officer” of JobsOhio

Here’s the full document.   More to come soon…