Deal Funds Movie Museum for Oscars
LOS ANGELES — The presenter of the film industry's Oscar awards is selling municipal bonds to fund construction of a permanent museum.
The Academy of Motion Picture Arts and Sciences received mixed ratings ahead of plans to sell $349 million of revenue bonds next week.
The majority of bond proceeds will help fund $388 million in construction and programming costs for the 310,000-square-foot museum on the Los Angeles County Museum of Art's campus in the mid-Wilshire district.
The sale also refunds the Academy's $35 million Series 2008 variable-rate bonds and terminates a $21 million fixed rate swap with Citi that had a negative $5.6 million valuation, according to a Moody's Investors Service report.
Moody's affirmed its Aa2 rating for the Academy's revenue bonds Sept. 25, but revised the Academy's outlook to negative from stable.
Standard & Poor's assigned the bonds an A rating with a stable outlook.
The Academy, which produces the annual Oscars award ceremony, began demolition in late September on the former May Co. department store it is redeveloping into a museum.
The museum is expected to open in spring 2018.
The 7,000 member film industry organization has been collecting movie relics since the 1920s for scholarly research and has amassed a collection of 11 million items, said Bill Kramer, the Academy's managing director.
"The Academy has talked about a film museum for decades," Kramer said. "We felt the economic climate was right, so we started a fundraising campaign and then we found a great partner with LACMA."
The collection includes the famous ruby red slippers worn by the character Dorothy in the "Wizard of Oz" movie as well as items from Katherine Hepburn's and Cary Grant's movies, but Kramer said the collection is too vast to fully describe.
Pritzker-prize winning Italian architect Renzo Piano designed the futuristic sphere that will house a 1,000-seat theater with a rooftop garden.
The sphere will be attached to a vastly-renovated May Co. building, also designed by Piano, which will have an Oscar etched onto the building. The main six-story building will have exhibition galleries, educational studios and film and performance theaters.
LACMA and the film industry organization have agreed to a $38.7 million, 55-year lease with an automatic 55-year renewal. The bond proceeds will cover $6 million of the lease.
A retail order period is scheduled Tuesday with institutional sales to follow Wednesday.
The California Infrastructure and Economic Development Bank is conduit issuer.
The finance team is composed of Wells Fargo as sole book manager, Hawkins Delafield & Woods LLP as bond counsel and Orrick Herrington & Sutcliffe LLP as underwriter's counsel.
The $221 million 2015 Series A fixed-rate bonds will have serial bonds with maturities ranging from 2020 to 2035 and term bonds maturing in 2040 and 2045. There will also be an optional par call commencing on November 1, 2023.
The $128 million 2015 Series B floating rate notes will be sold at an index mode of 70% of one-month London Interbank Offering Rates plus a spread to be determined at a later date. The Series B bonds will have a mandatory tender on Nov. 1, 2020 and an optional par call commencing May 1, 2020.
Both series will be tax-exempt.
The IBank board agreed at its Sept. 22 meeting to be the conduit issuer.
"It is a wonderful example of the ability of IBank to help with community economic development projects," said Executive Director Teveia Barnes. "It shows how we can help nonprofits reduce debt through refundings and refinancings and to achieve a lower cost of financing through 501(c)(3) conduit bond financing."
The IBank has to evaluate the public benefits of a project and ensure a project is eligible for tax-exempt financing.
The Academy's museum qualified because it will provide educational programming and open to the public a collection that was previously only available to Academy members.
Construction will also employ 500 people and the museum will employ 140 people full-time once it opens, Barnes said.
Moody's negative outlook indicates downward pressure over the next 18 months, said Diane Viacava, a Moody's analyst.
The negative outlook takes into account construction risk and concerns that it won't be able to convert the $215 million in written pledges it had received from its capital campaign as of Aug. 30 to cash, Viacava said. The Academy has converted $62 million of that total to cash, Andy Horn, the Academy's chief financial officer, said during an online "road show" for investors.
The amount collected represents 55% of the campaign goal, but they also have verbal pledges, he said.
The capital campaign began in 2012 after the Academy's board voted to move ahead with the museum. At that time, Disney Corp. President Bob Iger was named to chair the effort with Tom Hanks and Annette Bening as co-chairs.
The academy chose floating-rate bonds for part of the financing, Horn said in an emailed response, because they want the flexibility of being able to retire debt quickly with capital campaign proceeds after the project is completed.
After the bond sale, 37% of the Academy's debt will be variable-rate, which exposes it to some limited remarketing risk, Viacava said.
The structure of the Series B bonds alleviates some of that risk, because though the bonds have to be remarketed on the scheduled mandatory tender date, the Academy has no obligation to purchase any 2015B bonds on the scheduled mandatory tender date with its own funds, she said. Therefore failure to purchase the bonds on that date would not be an event of default.
If the remarketing is unsuccessful, the bonds enter into a four-year amortizable soft put bond delayed remarketing period. During that period, the Academy would pay a special mandatory redemption amount of six equal semi-annual payments with the first due following the start of the period.
The credit retains all the characteristics of an Aa2-rated bond including extremely strong cash flow, Viacava said.
"This is a nicely well-rounded profile with a strong balance sheet, liquidity, cash flow and good management," she said.
Though 75% of its revenue comes from the Academy Award ceremony, Viacava said management budgets carefully and has strong liquidity of $332 million.
It has four-year contracts totaling $500 million to broadcast the Oscars. The Academy, founded in 1927, has been holding the award show since 1929 and began broadcasting it in 1953.