Donna Stein, senior vice president of finance administration for the Franklin Institute, said the show is likely to be a blockbuster, an exhibit that has wide appeal and draws huge crowds. It comes on the heels of another blockbuster, an exhibit of artifacts from the Titanic that boosted attendance at the museum to 934,000 visitors in 2004.

"In fact, in 2004, it was our best attendance year in history," said Stein, adding that the museum increased its unrestricted, board-designated quasi-endowment with "a nice chunk of change."

From museums to performing arts centers, cultural institutions are constantly challenged to strike a balance between blockbusters and smaller offerings with good artistic value in order to grow their donor base and to keep their programs offerings fresh. Their success depends largely on location, reputation, and rival attractions.

"All of these players are competing for the audience's free time and disposable income," said Dennis Gephardt, an analyst with Moody's Investors Service.

Museums, zoos, aquariums, and gardens are also included under the umbrella of cultural institutions, which is considered a very diverse sector.

Cultural institutions such as museums tend to have a more diverse revenue stream than performing arts centers because they can count on a mix of admissions, retail sales, philanthropy, and - in some cases - municipal support, said Mary Peloquin-Dodd, a director at Standard & Poor's.

From 2000 through about 2003, museums underwent a construction boom to modernize their facilities, but this tapered off a few years ago. New York City's American Museum of Natural History was among this group.

"I don't think we'll see quite as much over the next five years as we did over the previous five years," Peloquin-Dodd said. "Now what we're seeing is more expansion of facilities."

To that end, the Franklin Institute plans to wrap up a $60 million renovation project this spring. Upgrades to the facility, originally built in 1932, include new heating and ventilation systems, a new roof, and new exhibit space. None of the project's cost was financed through debt.

"We were fortunate enough to get a significant grant from the Commonwealth of Pennsylvania to underwrite about one-third of the project," Stein said.

The institute did sell about $20 million in bonds in the early 1990s to pay for an addition and refinanced the debt in 1998 and 2004. Stein said the institute "didn't really have an appetite" to issue debt after that.

"All of the principles of leverage need to be considered when you finance a big project," she said.

Science museums in particular can be very capital-intensive due to the wear and tear on exhibits, according to Moody's analyst Beth Veasey.

Brian Kenyon, vice president of finance and administration for the Rock and Roll Hall of Fame in Cleveland, said the museum tends to shy away from bonding, partially due to the seasonal nature of the museum's business.

"We try to stay away from it as much as we can," he said.

Last year, the museum refinanced fixed-rate debt it sold through the Cleveland-Cuyahoga County Port Authority in 1993 to build its facility. The bonds were backed by a hotel bed tax, two corporate sponsorships, and a surcharge on admissions. The bed tax pulled in so much money that the surcharge has been eliminated.

The museum - which gets only 5% of its visitors from the Cleveland area and has an annual operating budget of $15 million - usually takes out a line of credit to sustain it during winter months when the number of out-of-town visitors wanes.

For those cultural institutions issuing debt, using bond insurance or a letter of credit from a bank is a good way to provide credit enhancement and liquidity. Traditionally, cultural institutions have sold short-term or variable-rate debt using an LOC, but in the current market they should consider longer maturities because intermediate and long-term rates have not risen as dramatically as short-term rates, said Mark Tenenhaus, a vice president at Radian Asset Assurance Inc.

"We're beginning to see a trend, not just among cultural institutions but among all municipal issuers, to revisit their asset-liability mixes since short-term rates have gone up in the last year and a half," he said.

Like other debt issuers, cultural institutions have to weigh whether they prefer locking in a low fixed-rate now or having the flexibility afforded through using variable-rate debt, Tenenhaus noted.

At National Public Radio, listenership is up about 50% over the last four years, according to chief financial officer Jim Elder. NPR has also opened about five new foreign bureaus in the last few years, bringing the total to 18.

NPR first borrowed to finance its Washington, D.C., headquarters in 1992 and refinanced that debt in 2001 to help keep up with growth.

"Just funding our expansion is a huge issue," Elder said. "It makes revenue-stream maintenance critical."

NPR, which relies heavily on federal funding, most recently has had to factor into its balance sheet costs for covering the war in Iraq and the impact of hurricanes Katrina and Rita on the Gulf Coast. Earlier this year, NPR, along with public television, faced steep budget-slashing in Congress, but the cuts were later restored.

Like performing arts centers, variety in offerings is crucial to cultural institutions.

"A lot of those blockbuster exhibitions are very expensive," said Pam Clayton, a managing director with Fitch Ratings. "You've got to have a lot of people come through the door."

The Franklin Institute, for example, has launched a number of initiatives to appeal to a broad group of visitors. Last year, to attract the many college students in the Philadelphia area, the museum held a Valentine's Day celebration featuring a large model heart, and its IMAX theater has started showing first-run movies geared for families. In addition, the museum grosses about $1.2 million a year in facilities rentals.

But despite a good mix of programs, fundraising is still a key component to cultural institutions' bottom lines.

"Many of the newer organizations are just getting into fundraising as a professional business," said Moody's Veasey.

This includes beefing up staff, broadening the campaign to go beyond bricks and mortar projects, and boosting unrestricted giving.

Moody's assigns an A1 median rating to 26 cultural institutions it rates, with a combined $2.7 billion in debt, although it put the sector under review this fall.

Standard & Poor's rates about 100 not-for-profit corporations, most of which are museums but which also includes a handful of performing arts centers. Their ratings range from AAA for the Smithsonian Institute to BBB for the Alvin Ailey American Dance Theater.

Fitch does not maintain a sector rating on cultural institutions, but Clayton said her personal outlook on the sector was stable. (c) 2005 The Bond Buyer and SourceMedia, Inc. All Rights Reserved.

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