The Mystic Aquarium & Institute for Exploration in Connecticut got a lifeline on Tuesday from Citi, which agreed to forgive $13.4 million of debt and convert $19 million of outstanding bonds into an effective loan.
Last week, Citibank, which provided a letter of credit for $33.1 million of outstanding bonds, declared a default and accelerated payment of the bonds. Thursday, trustee M & T Trust Company of Delaware drew on the letter of credit and paid principal and interest on the bonds to the Depository Trust & Clearing Corp., which was responsible for paying those funds to bondholders.
The Connecticut Development Authority issued $16.8 million of tax-exempt bonds in 2007 to refund bonds sold in 1997 on behalf of the 501(c)(3) nonprofit Sea Research Foundation Inc., which owns and operates the aquarium.
Additionally, the authority issued $5.9 million of federally taxable bonds to refinance capital expenditures. Also that year, the foundation’s for-profit subsidiary, Mystic Entertainment Co., issued $10.8 million of taxable corporate bonds to refinance outstanding debt.
“Citi fully supports the foundation’s mission, and their dedication to protecting our oceans through education, research, and exploration,” Citi spokeswoman Danielle Romero-Apsilos said in a news release. “We hope that this agreement will allow Sea Research Foundation to continue its important work.”
The agreement closely follows a plan outlined in the foundation’s audited financial statements that were disclosed on the Municipal Securities Rulemaking Board’s EMMA website in June.
The aquarium was founded in 1973 in Stonington and features beluga whales, penguins, and sea lions.
The foundation ran operating deficits of $2.1 million and $3.3 million on revenues of $18.4 million and $20.8 million in fiscal 2008 and 2009, respectively. During this time, however, revenues from admissions and memberships were going up slightly.
A plan to raise additional revenue by opening up a chain of video game-themed restaurants beginning in 2006 ended in a costly failure two years later.
The foundation’s subsidiary, Mystic Entertainment Co., opened two restaurants called the Blue Turtle, one at a mall in Milford and one in Manchester. Both restaurants closed in 2008. The company recorded a net loss of $9.1 million in fiscal 2008, according to its audited financial statement. The foundation was a guarantor of the corporate bonds that financed the restaurants.
“Various ventures that we undertook in order to generate more revenue, not all of them were successful,” said foundation spokesman Peter Glankoff. “That’s certainly an example of one that was not successful, but at that time we were really casting about for ways to generate revenue to keep the doors open.”
Glankoff said that subsequently, the foundation focused on its core business, cutting costs and working to improve revenues.
“We did real well with that but at the same time, the total $34 million burden was not supportable and so we’ve worked very hard with the lender to come up with a solution and this is it,” he said.
In 2009, the foundation was in technical default after failing to make monthly payments to a debt-service fund on authority-issued bonds during the first half of the year due to “financial difficulties,” according to a material-event notice.
Under the terms of the agreement with Citi, bonds are all being retired and the obligation becomes an unreimbursed letter-of-credit obligation, structured as a 30-year loan with level amortization, a source familiar with the agreement said. Citi has forgiven $13.4 million of the $33.1 million of principal and accrued interest outstanding. The foundation made a payment of $700,000 to Citi. Citi will forgive an additional $5 million of the foundation’s remaining $19 million of debt if it prepays $4 million over the next six years.
The aquarium is also getting a boost from the state, which last month authorized a $1 million grant to the foundation which it will finance through bonds.
“This money will be used for capital improvements and continue to grow and attract additional visitors ” said Rich Harris, spokesman for outgoing Gov. M. Jodi Rell. “It’s one of if biggest if not the biggest tourist attractions in Connecticut.”
Moody’s Investors Service and Standard & Poor’s rated the bonds A1 and A-plus, respectively, based on the letter of credit.