Moody’s Investors Service last month gave a first-time issuer credit rating of Aa3 to the Saint Louis Art Museum as it looks to sell $47.5 million of debt through its affiliated foundation to finance a major addition.

The rating reflects the unsecured general obligation credit characteristics of the museum but does not incorporate an analysis of the legal security of the planned bond issue, analysts stressed.

The museum, founded in 1879, is located in the 1,300-acre Forest Park, home to the 1904 World’s Fair. It benefits from a leading market position with more than 500,000 visitors annually.

The institution receives significant public support from voter-supported tax levies in the A2-rated city of St. Louis and the Aaa-rated St. Louis County, with property tax revenue accounting for 61% of its adjusted operating revenues of $30 million in fiscal 2007. The public support “considerably enhances long-term stability” for the credit, analysts wrote.

The museum is governed by a prominent board that seeks input from other advisory boards, providing what Moody’s considers to be sound governance. The volunteer leadership has also been instrumental in successful fundraising, with average gift revenue of $22 million annually between fiscal 2005 and 2007.

Credit financials are sound and provide flexibility, with $200 million in resources in fiscal 2007, 84% of which is expendable. The resources will provide a 3.5 times debt-coverage ratio and 6.8 times coverage of operating expenses. Challenges include a capital expansion project with an estimated cost of $124.5 million that will require ongoing oversight.

The museum has also recently hired consultants to assist in reporting on investment performance, establishing benchmarks, and updating asset allocation to move to practices more in line with peers.

“Moody’s believes the Saint Louis Art Museum will continue its prominent role in serving as the region’s cultural venue, offering free admission and access to a renowned comprehensive permanent collection as well as engaging temporary exhibits and other art programs,” analysts wrote.

The museum last spring chose JPMorgan as senior manager and Edward Jones as co-senior manager for a bond deal to begin work on the expansion designed by British-based architect David Chipperfield. The board decided last November to delay the sale due to market turmoil.

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