Fitch Ratings upgraded $143 million of revenue bonds issued by the San Francisco-based M.H. de Young Museum to A from A-minus.
The art museum sold the bonds via the Association of Bay Area Governments Finance Authority for Nonprofit Corporations to finance construction of a new museum in 2002. The copper-clad modernist landmark has drawn huge crowds since opening in Golden Gate Park in 2005, and it has benefited from the opening last year of the new California Academy of Science next door.
“The upgrade reflects significantly better than expected attendance at the M.H. deYoung Memorial Museum; the solid liquidity provided by a trend of positive operations and proven fundraising capabilities; a strong management team, experienced in financial planning; and the distinguished reputation of the museums,” Fitch analysts Mary Catherine Messner and Douglas J. Kilcommons in a report.
The rating is weighed down by reliance on funding from the city and county of San Francisco and “a high debt burden due to the aggressive use of auction-rate debt structures.”
Fitch said attendance has been “significantly over budget” with the museum’s membership base growing to the fourth largest in the nation. Attendance in the first five months of fiscal 2009 beat the forecast of 1,065,000 visitors for the entire year. The museum’s fiscal 2008 operating margin was a solid 2.5%, Fitch said.
The main knock against the museum is its debt load and debt management.
“The museum’s debt profile is aggressive, made up entirely of auction-rate securities that do not begin to amortize until 2028,” Messner and Kilcommons said. “Annual interest-only payments represented a high 14% of fiscal 2008 operating revenues.”
The report said the museum’s solid liquidity position somewhat offsets the concerns about its aggressive debt-management policies.
