SAN FRANCISCO - The Los Angeles County Museum of Art will bring $383 million of variable-rate bonds to market tomorrow to refund its outstanding variable-rate debt portfolio.
The bulk of the debt will refinance auction-rate securities issued in 2004 and 2007, while a small portion will refund variable-rate demand obligations that were insured by Financial Guaranty Insurance Co.
The original debt financed the renovation of the museum campus under the direction of Pritzker Prize-winning architect Renzo Piano. The museum, also known as LACMA, is home to more than 100,000 works of art that span a range of artists as diverse as German Renaissance painter Albrecht Durer, Mexican muralist Diego Rivera, and pop artist David Hockney.
"In February, our rates started to go very high," peaking at 11% when the auction-rate securities market collapsed, said LACMA chief financial officer Ann Rowland. "We are doing this to get back to lower rates."
The museum was able to push its rates back below 4% with the help of Los Angeles County, which began using its investment pool to bid on the museum's ARS beginning in April. The museum is a nonprofit organization, not a part of the county government.
The museum is refunding the debt now to lower rates further and to get a permanent solution to its ARS woes. The museum will refinance the debt with five series of VRDOs - 2008A to 2008E - sold via the California Statewide Communities Development Authority.
The debt is backed by an irrevocable, direct-pay letter of credit from Wells Fargo Bank NA, which is rated triple-A by the major credit rating agencies. Rowland said the museum had little trouble lining up its letter of credit, unlike many issuers who have struggled to find enhancement this year.
She said the museum's commercial bank - Union Bank of California - helped put together a syndicate of eight letter of credit banks to bid on the deal. Wells Fargo is "fronting" the deal as the lead bank because of its triple-A ratings.
Rowland declined to say how much LACMA paid for the LOC.
LACMA will amend and maintain swap agreements that synthetically fixed $256 million of the outstanding debt. The agreements with Citibank NA were amended to remove swap payment-insurer FGIC, which was downgraded this year to below-investment grade. The museum expects to net a fixed rate of about 3.5% on the swapped portion of the debt.
The new debt is a general obligation of the museum, backed by its general assets, but not its priceless art collection. Los Angeles County does not back the debt, though the county does give the museum almost $35 million a year in grants and subsidies and has helped it manage the auction-rate crisis.
LACMA secured an underlying rating of A2 from Moody's Investors Service in conjunction with the deal. It did not seek underlying ratings from Fitch Ratings or Standard & Poor's.
Citi, which also underwrote the outstanding ARS, will be the senior manager on the deal. It will share remarketing responsibilities with its three co-managers.
Citi will remarket Series A and B, both with par values of $100 million. Stone & Youngberg will be the remarketing agent for the $95 million series C. JPMorgan will remarket the $60 million Series D. Wells Fargo Institutional Securities will remarket the $28 million Series E.
Series A and B will reach final maturity in 2037, and Series C, D, and E will mature in 2034. All of the debt will be remarketed weekly, except Series D, which will be in daily mode.
