CHICAGO — A Nebraska museum celebrating American pioneer history that supporters hoped would be among the plains states’ top tourist destinations defaulted this month on $20 million of capital appreciation bonds, the latest in a series of defaults on $60 million of debt that the museum has never generated enough money to service.

The latest default has left bondholders with little recourse but to wait and see if the museum’s fiscal position improves, as the assets backing the bonds are essentially worthless.

The Great Platte River Road Archway Monument, a pet project of former Nebraska Gov. Frank Morrison, opened in 1999 outside the city of Kearney. It has since failed to meet attendance goals and has barely generated enough revenue to pay its light bill, let alone debt service on the $60 million of bonds issued to finance it, according to the director.

After tapping reserve funds to pay the interest-only debt service payments in 2002, the borrower and bondholders went to court in 2003. The settlement trimmed the original $60 million of serial bonds down to $20 million of capital appreciations bonds and $2 million of current interest bonds.

But the museum did not generate enough money to cover the $2 million of current interest bonds and defaulted on the $20 million of capital appreciation bonds when it did failed to make the single balloon payment on the debt due on Sept. 1.

The problem is the location, said director Gary Roubicek. The facility literally straddles Interstate 80, but lacks a highway exit, so few of the 22,000 drivers that pass the museum daily bother to stop.

Now the state is building a new interchange that bondholders and museum officials hope will boost business. Investors have few alternatives, the bond trustee said in a recent note. The bonds are backed by a mortgage on the real estate as well as revenue generated by the facility, but the land is likely not worth the cost of collection and salvage cost would exceed salvage value, the trustee said.

“Since the interchange is incomplete, the idea that improved access will lead to increased attendance at the debtor’s Archway remains untested,” bond trustee Wells Fargo wrote in an Aug. 31, 2012 notice to bondholders. “The trustee does not intend to pursue remedies ... Any ideas holders of the bonds have about an effective collection method would be appreciated.”

The trustee has roughly $80,000 in an account, not enough to pursue a remedy like a lawsuit or foreclosure, it said.

Bondholders are mostly small retail buyers located across the country who hold as little as $5,000 to $10,000 of principal, according to a source familiar with the original sale who asked to remain anonymous. There are virtually no local bondholders. “The project didn’t have that much local support,” the source said.

The Great Platte River Road Memorial Foundation, with Gov. Morrison as its chairman, issued $60 million of unrated, tax-exempt industrial development revenue bonds in 1998 to finance construction of the Great Platte River Road Archway Monument. It’s a multi-story building featuring interactive exhibits about American pioneers who passed through Nebraska on their way West and “brings the westward migration to life,” according to its website. Pioneers on most well-known trails, including the California, Oregon, and Mormon Trails and the Pony Express used the Great Platte Road.

More recently, the museum was the location for a final scene in the Jack Nicholson movie “About Schmidt.”

Original bond documents promote the financing with optimistic revenue and patronage projections and say the museum could rank among the top tourist destinations in the western United States.

“Given its location, over I-80, the revenue consultant expects the Archway to provide a convenient place to stop, both for amusement and necessity, to break up an otherwise ‘endless’ trip across the plains states,” read the 1998 bond documents. “The revenue consultant believes the Archway will be ranked along with the national parks and other great western states destinations in terms of its stature.” 

Salomon Smith Barney and Ameritas Investment Corp. were the underwriters on the deal. Original projections estimate that revenues would reach $14.7 million by 2012 and $32.5 million by 2027, with debt-service coverage levels of 1.8 times in 2012 and 3.47 times by 2027.

In reality, the facility has recently generated roughly $600,000 a year, barely enough to stay open, Roubicek said. Nearly all revenue comes not from ticket sales but from foundation grants.

“Any money that we raise is used to avoid going bankrupt — that’s basically the way it works,” said Roubicek, a former Burger King franchise owner who took over the job in 2003. “The road this place has travelled in 12 years has been one failure after another except for the fact that we’re open.”

The original plan called for an interchange to open near the Archway within a few years of the museum’s opening. Delays on the projects were listed as one of several bondholder risks in bond documents. The new highway interchange is now expected to be completed in late 2013. “The only hope you have is when the interchange opens it’ll get busier,” Roubicek said. “If you’re a bondholder, it’s not a pretty thing.”

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