The National Museum of American Jewish History in Philadelphia filed for Chapter 11 bankruptcy protection Monday in a bid to seek relief from the debt burden it took on to build a new building a decade ago.
Papers filed with the U.S. Bankruptcy Court in Philadelphia Monday said the museum owes more than $30 million to bondholders stemming from June 2015 bonds issued through the Philadelphia Authority for Industrial Development. The conduit issuer sold the refunding bonds to refinance a construction loan used to build the museum’s current home on Philadelphia’s Independence Mall that opened in 2010.
“The museum has too much debt and it is not a sustainable model,” said Lawrence G. McMichael, a bankruptcy attorney at Dilworth, Paxson, LPP, which advising the museum’s reorganization. “The museum has been treading water for quite some time in philanthropy and donations.”
McMichael said the museum wants to exit bankruptcy within a few months and expects bondholders to receive a portion of their principal with the museum also having reduced debt obligations. He said the museum’s debt struggles were partly associated to the Great Recession of 2008 taking hold soon after construction of its new home began.
The bonds consisted of $17 million in Series 2015A and $13.75 million Series 2015B bonds. The Series 2015A bonds are held by BNB Bank (formerly Bridgehampton National Bank) with roughly $16.3 million outstanding not counting interests and fees, according to court documents. The 2015B bonds are tied to 12 individual donors, foundations and trusts.
Debt service requirements for the 2015A bonds were structured as monthly interest payments at 3.25% for the first two years followed by monthly payments of principal and interest at a 3.25% fixed rate on a 30 year amortization schedule from August 5, 2017 to June 5, 2022. A balloon payment for the remaining principal amount of $15.2 million and interest is due on July 5, 2022.
The debt service schedule for the 2015B bonds were constructed as semi-annual interest only payments on January 5 and July 5 of each year at 4.5% interest through July 5, 2047. A balloon payment of the remaining $13.75 principal amount on the bonds is due in 2047.
The NMAJH was founded in 1976 and was originally located in a shared building with Congregation Mikveh Israel. The museum, which is affiliated with the Smithsonian Institution, broke ground on the larger Independence Mall building in September 2007 with the project financed primarily through donations and a construction loan.
The filing notes that since opening the new museum location in 2010, revenues from gate receipts and events have been “inconsistent” with the NMAJH cutting some paid positions in 2017 in an attempt to reduce its operating expenses. Revenues still remained “insufficient”, however, to fully fund the museum’s expenses and debt service.
“While no institution chooses such a reorganization lightly, this decision is expected to bring with it a reduction in debt that will create a new level of sustainability that assures our part in telling a unique and compelling story of the American experience,” Philip M. Darivoff, Chair of the NMAJH Board of Trustees, said in a statement. “We will continue to fill our vital role in preserving and interpreting American Jewish history.”
