San Francisco Museum Faces LOC End, Gets Put on Watch

SAN FRANCISCO — The Asian Art Museum is struggling to recover its financial footing while renegotiating its debt with creditors.

The San Francisco museum’s foundation, which has been hit hard by the economic downturn, faces the expiration of a letter of credit from JPMorgan Chase & Co. that backs $120 million of outstanding variable-rate revenue bonds.

As a result of the financial turmoil, Moody’s Investors Service placed the underlying Baa1 rating of the Asian Art Museum Foundation of San Francisco on watch list Friday for a possible downgrade. The foundation is the museum’s private fundraising arm.

Moody’s said it is concerned about the foundation’s liquidity and operating performance amid the looming expiration of the letter of credit on Dec. 21.

The foundation is the obligor for the bonds, which were issued through the California Infrastructure and Economic Development Bank.

The nonprofit foundation has retained Bruce Bennett, a Los Angeles lawyer with Hennigan, Bennett & Dorman, to help with negotiations. He represented Orange Country during its 1994 bankruptcy.

The museum is one of the largest in the West focused on Asian art, with 17,000 pieces and an average of 300,000 visitors a year. It put out a press release Thursday saying it would be able to keep its doors open despite the financial challenges.

“While this has been a difficult situation, it will have no impact on the museum’s core operations,” Tony Sun, chairman of the Asian Art Museum Foundation, said in a statement.

A spokesman for the museum said the foundation was also working with City Hall to resolve the institution’s financial crisis.

Foundation finance officials were ­unavailable for comment.

The foundation had total operating revenues of $27.7 million in fiscal 2009, with $36.7 million of monthly liquidity. Its cash and investments totaled $86.2 million.

The rating agency said the near-term expiration of the letter raises concerns about whether the museum foundation can renew or replace the letter, and the terms it will face if it does.

The $120 million of bonds are hedged by an interest rate swap with JPMorgan that is insured by MBIA. The insurer’s downgrade to below Aa3 forced the foundation to post $14.2 million collateral with the bank, according to Moody’s.

The museum’s revenues secure the bonds issued in 2005, which were originally insured by MBIA and are now reinsured by National Public Finance Guarantee.

In June 2008, after the downgrade of MBIA’s credit rating, Standard & Poor’s downgraded the 2005 bonds to AA from AAA, which increased the museum’s ­interest payments.

The foundation issued the bonds to refund fixed-rate bonds sold in 2000 that were used to pay for the museum’s move to its current building in the San Francisco Civic Center.

The city owns the museum building and its collections. The city and the foundation jointly pay for the museum’s staff, facilities, and operations.

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