SAN FRANCISCO — The Asian Art Museum Foundation won 30 days of breathing room Tuesday to negotiate accelerated payments after the expiration of a letter of credit from JPMorgan Chase & Co. that the San Francisco institution had used to back $120 million of bonds.
The foundation, the fundraising arm of the Asian Art Museum, hashed out a 30-day forbearance agreement on some obligations with JPMorgan and insurer MBIA. The pact gives the parties time to negotiate a “suitable” restructuring of the 2005 variable-rate revenue bonds, according to museum spokesman Tim Hallman.
He confirmed that JPMorgan now owns the bonds after the expiration of the LOC on Tuesday forced the bank to make a tender offer to bondholders. But he said JPMorgan hasn’t yet seized the $20 million in collateral the foundation has posted with the bank.
Hallman said negotiations continue at very high levels at San Francisco City Hall. JPMorgan declined to comment on the agreement.
Moody’s Investors Service said in a report Friday that negotiations center on the time frame of the potential accelerated payments that would have kicked in at a tight five-year schedule after the expiration of the LOC. Moody’s cut the foundation’s underlying rating to junk status due to the expiration of the LOC, dropping it to Ba1 from Baa1, and kept the credit on negative watch for a further downgrade.
If the foundation is required to repay the bank bonds in quarterly payments over five years, its annual payments would hit $29.85 million plus interest, according to Moody’s. The agency indicated the first $6 million payment would be due March 21.
Moody’s analyst Diane Viacava said in the note that the speculative-grade rating reflected the foundation’s inadequate financial resources and liquidity to “comfortably” pay a likely five-year accelerated payment plan.
The foundation has $36 million of unrestricted cash and investments that could be liquidated within a month and an additional $19 million that could be liquidated within a year, Moody’s said.
Analysts said the foundation’s modest philanthropic support — $7.8 million in 2009 — and operating margins around 3% would provide little help in making accelerated payments on the bonds.
The foundation’s operating revenue totaled $27.7 million in fiscal 2009, with $36.7 million of monthly liquidity. Its cash and investments totaled $86.2 million.
The foundation has access to a cash-funded debt-service reserve fund valued at $7.7 million, equal to one year of debt service. There is no mortgage or deed of trust on the land or building occupied by the museum. Moody’s said the foundation did not disclose its draft fiscal 2010 financial statement.
The foundation has retained bankruptcy lawyer Bruce Bennett, a partner in the Los Angeles firm Hennigan, Bennett & Dorman, who represented Orange County during its 1994 bankruptcy.
The $120 million of bonds, which were issued through the California Infrastructure and Economic Development Bank, are also hedged by an interest-rate swap with JPMorgan. The bonds are insured by MBIA through its subsidiary National Public Finance Guarantee.
The insurer’s downgrade during the financial crisis to a level below Aa3 is the reason the foundation had to post $20 million in collateral with the bank.
Earlier this month, San Francisco city attorney David Herrera sent a shot across the bow of both JPMorgan Chase and MBIA in the form of threatening letters about their involvement in the museum’s financial crisis.
In the letter to JPMorgan, Herrera — who is running for mayor of San Francisco — said the bank had a conflict of interest as it was the primary architect of the current financing and serves or has served as the foundation’s underwriter, remarketing agent, swap counterparty, investment portfolio manager and letter-of-credit provider.
Herrera said the bank has reaped at least $13 million from the foundation in fees and other charges related to its roles.