The Broad Collection, which oversees the museum, will sell the revenue bonds to finance and build the Broad Art Foundation museum in the city's evolving downtown cultural center.
Called the Broad, the new museum will host 2,000 works from Eli and Edythe Broad's art foundation and private art collection, representing more than 200 post-war and contemporary artists.
Eli and Edythe Broad are giving Los Angeles more than $2 billion to build the museum, endow it, and fill it with their art collection.
The deal is set to price Thursday, according to a person involved in the sale who declined to be identified. The bonds will all have 10-year maturities.
Ken Naehu, a portfolio manager at Bel Air Investment Advisors in Los Angeles, said he would expect the deal to get a great reception from the market. He said the Broad bonds appear similar to the highly rated J. Paul Getty Trust bonds that are backed by an endowment and at times trade like pre-refunded bonds or better.
"In this type of marketplace where a lot of investors are putting yield aside for safety or security, those are the types of bonds that are sought after," according to Naehu.
The bonds, rated Aa1 by Moody's Investors Service, will be sold through the California Infrastructure and Economic Development Bank.
The three-story Broad museum is under construction on Grand Avenue and is expected to open in spring 2013 at a cost of up to $170 million.
Designed by architects Diller Scofidio and Renfro, the museum, dubbed "the veil and the vault," will be built across from the Walt Disney Concert Hall and the Museum of Contemporary Art.
Broad's foundations — the Eli and Edythe Broad Foundation and the Broad Art Foundation — will back the museum and its bonds. The foundations have pledged to cover debt service and make annual payments of $12 million for 10 years to enable the museum to pay for operations, according to a report this month by Moody's.
Analysts said the foundations' large, unrestricted balance sheets equal to $1.56 billion will provide generous debt-service coverage.
However, the rating agency noted that the museum will be heavily dependent on Eli Broad — who has other philanthropic commitments — and his foundations, whose assets fluctuate in value with investment markets.
The Los Angeles Community Redevelopment Authority will also spend $52 million to build a three-level parking garage and a pedestrian plaza, and to make street improvements.
The 120,000-square-foot project will feature a lecture hall for up to 200 people, a multimedia gallery, an archive, and a study and storage space.
The Broad will add millions of dollars to the Los Angeles economy, creating more than 1,300 jobs, according to the art foundation.
The Broad Art Foundation was founded in 1984 to lend art to museums and universities around the world. The Eli and Edythe Broad Foundation formed in 1999 to provide grants in education, sciences, and the arts.
Raised in Detroit, Broad helped found the homebuilding company Kaufman and Broad Home Corp. He later acquired the small Sun Life Insurance Company of America and turned it into SunAmerica, which he sold in 1999 to AIG for $18 billion.
Eli Broad also started the Broad Prize for Urban Education, a $600 million commitment to establish the Broad Institute as a genomic research institute and for gifts to the California Institute of Technology and University of California San Francisco to build stem-cell medical research facilities.
Morgan Stanley is the underwriter on the deal and Nixon Peabody LLP is bond counsel.