Lincoln Center’s rating cut on weak operating performance

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Lincoln Center for the Performing Arts, home to the New York Philharmonic, the Metropolitan Opera and the New York City Ballet, had its credit rating on $88 million bonds cut by Moody’s Investors Service as the non-profit that runs it deals with falling attendance and high financial leverage.

Moody’s cut its rating on Lincoln Center debt issued in 2016 one level to A3 from A2 and assigned a stable outlook. The rating takes into account the organization’s globally recognized brand, strong donor support and a high-profile board that includes David Geffen and Wall Street bold-faced names like David Rubenstein, Bruce Kovner, and Julian Robertson.

“While management has identified plans to meaningfully improve operating results over the next three years, the multiple years of operating weakness have translated into a modest decline in liquidity,” Moody’s said in a statement.

In addition to overseeing the campus, which completed a $1.2 billion renovation in 2012, Lincoln Center presents festivals and performance series like Midsummer Night Swing, American Songbook and Great Performers. Paid attendance dropped 30% to 170,092 between 2016 and 2018, according to bond filings.

Lincoln Center posted small operating losses of $4 million in 2017 and $2.7 million in 2018 and a $550,000 gain in fiscal 2019. That wasn’t sufficient of pay interest-only debt of about $9.6 million so the organization had to draw down assets.

The organization also entered into interest rate swaps to hedge the risk of rising interest rates on about $150 million of variable debt issued in 2008. The value of the swaps, which locked in rates of 3.7% on $95 million bonds and 4% on $50 million bonds, has declined as the Federal Reserve lowered interest rates to revive a sluggish economy. The swaps were a $50 million liability as of June 30, according to Moody’s.

“We are focused on financial sustainability in all we do,” Leah Johnson, chief communications and marketing officer for Lincoln Center, said in an e-mailed statement. “We achieved a balanced operating budget in fiscal year 2019, and anticipate doing so in fiscal year 2020. We will continue to strengthen our balance sheet and we anticipate even stronger results this year. We have exciting plans for the future that will affirm Lincoln Center as one of the leading performing arts centers in the world.”

Lincoln Center plans to boost the revenue it gets from renting its marquee venues for fundraisers and awards programs and streamline operations, said Dennis Gephardt, a Moody’s analyst.

Lincoln Center’s construction was overseen by Robert Moses as part of a slum clearing plan in the 1950s that transformed New York City. The Lincoln Center project displaced an estimated 7,000 low-income families, who never received relocation assistance. It’s planning a $550 million renovation of Geffen Hall, home of the New York Philharmonic.

Lincoln Center is supported by Bloomberg Philanthropies, the charitable organization started by Michael Bloomberg, founder and majority owner of Bloomberg LP, the parent of Bloomberg News. Richard Descherer, Bloomberg LP’s chief legal and compliance officer, is a member of Lincoln Center’s 80-member board of directors.

Bloomberg News