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Deal in Focus

Keeping It Arty in Fort Worth

DALLAS — After years of discussion and disagreements about expanding Fort Worth’s celebrated Kimbell Art Museum, a finance team is preparing a $62 million bond package to build an adjacent gallery.

The underwriting team is led by JPMorgan as book-runner. Bank of Texas is co-manager. Two series are expected to be issued July 12 through the Orchard Cultural Facilities Education Corp. — $13 million of tax-exempt and $48 million of taxable revenue bonds.

The Kimbell Art Foundation, which owns the museum, also expects to issue another $40 million of variable-rate demand bonds to complete the project, analysts said. KAF has already invested $15 million in the addition.

The bonds received a AA from Fitch Ratings and a AA-minus from Standard & Poor’s.

“The rating reflects our view of the foundation’s strong level of financial resources and consistently balanced financial operations,” said Standard & Poor’s analyst Bianca Gaytan-Burrell. “Further supporting the rating is that this is the foundation’s only debt, although there may be limited additional plans.”

Founded in 1936 from the oil wealth of Kay and Velma Kimbell, the foundation began drawing up plans for the museum when Velma Kimbell died in 1964 after directing that her estate be used to build it.

The foundation became an operating foundation, sharing financial reporting with the museum.

Though the museum is its primary beneficiary, the foundation occasionally provides financial assistance to other organizations conducting art education programs.

The museum is not legally pledged as security in support of debt service on the bonds or in making any other payments, since the bonds are a general obligation of the foundation, analysts noted.

However, the museum’s assets, primarily the art collection, can be used to pay debt service.

“The stable outlook reflects our expectation that during the next two years, the foundation will maintain its strong financial resource positions relative to the rating category and record balanced operating results on a full-accrual basis as it absorbs the new facility and related overhead into its operating budget,” Gaytan-Burrell said. “The outlook also reflects our anticipation of the foundation’s issuance of additional debt to complete the project.”

Credit risks include cost overruns or completion delays in the project, substantial debt issuance beyond the current capital program, or operating deficits, analysts said.

The museum is in Fort Worth’s Cultural District, west of downtown, with the Amon Carter Museum to the immediate west and the Modern Art Museum of Fort Worth to the east.

The Kimbell was commissioned by the foundation’s board of directors in 1966 with the concept of creating an art institute for the people of Texas.

It charges no admission to view the permanent collection. The building was designed by Louis I. Kahn and opened in 1972.

The permanent collection focuses on quality rather than quantity, with about 350 pieces, including masterpieces from ancient to modern times.

In 2009, the museum acquired the only Michelangelo in the Western Hemisphere.

Critics have praised the Kimbell’s luminous concrete and travertine hall under a barrel vaulted roof designed by Kahn in the International style.

The new building will include an underground parking garage that will lead visitors to the front of the original Kahn building.

Because the original gallery could not display all of the museum’s collection at the same time as visiting exhibits, discussions about expansion began in the 1980s. However, architectural plans drew protests from local museum supporters as well as members of Kahn’s family. The foundation shelved expansion plans until 2007 when it announced that Italian architect Renzo Piano had been hired to build the addition.

Piano, who once worked for Kahn in Philadelphia, created a design that does not replicate the original gallery’s profile but stands apart in a complementary style.

Piano, who works in his hometown of Genoa, Italy, also designed the Nasher Sculpture Center in nearby Dallas.

His major projects include the Centre Georges Pompidou, a museum in Paris known popularly as the Beaubourg, the Beyeler Museum in Basel, Switzerland, and the newly opened Klee Museum in Bern. U.S. projects include expansions of the Art Institute of Chicago, the Los Angeles County Museum of Art, and the Whitney Museum of American Art in New York.

He also enlarged the Morgan Library and Museum in New York and the High Museum of Art in Atlanta.

With groundbreaking this summer, the new gallery is expected to open in 2013. In addition to the gallery, the new building will include classrooms, studios, and an auditorium larger than the original in the Kahn building.

“The Kimbell has never been able to present a major exhibition and a full display of the permanent collection at the same time,” said Kimbell director Eric Lee. “With the Piano building in place, this becomes possible.”

The area between the two buildings will include a shallow pool flanked by pathways.

The Kimbell Art Foundation’s oil and gas royalties and experienced management translate to Fitch’s AA rating, analysts said.

“The dependency upon oil- and gas-related income for nearly 83% of annual operating support is partly mitigated by the proven revenue-generating capabilities of KAF’s interests and minimal operating and capital risks,” said analyst Douglas Kilcommons.

“Given KAF’s history, it is expected that oil and gas royalties will continue to be relied upon to help subsidize the museum’s operating costs, including expenditures related to exhibitions, which are at times significant.”

To reduce dependence on its oil and gas portfolio, the foundation is seeking to develop other revenue streams from memberships and other programs.

The foundation’s nine-member board includes six members of the founding family. Kay C. Fortson, president of the board, is the niece and sole heir of Kay Kimbell, and the chief benefactor of the foundation.

Her husband, Ben J. Fortson, is vice president of the board. Their son, Ben J. Fortson 3d, is also a vice president and the three other Fortson children serve on the board.

The museum and foundation share the same board. The board has delegated management and daily operations of the museum to Lee, who was hired in March 2009.

“Although the board comprises an experienced group of trustees with a long tenure, we believe the lack of turnover and diversification of the board is a cause of some concern,” Gaytan-Burrell said. “Furthermore, the lack of a formal strategy for replacing members in the event that any members of the original founding family cannot serve also presents some concern.”

With the new bonds, the foundation’s debt will represent about 10% of its unaudited operating revenues as of 2009, according to Fitch.

“The expected issuance of an additional $40 million in bonds is not likely to materially impact debt service coverage, with additional revenue growth expected to offset the increased carrying charges,” Kilcommons said.

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