CHICAGO - Nebraska's largest museum, the Josyln Art Museum in Omaha, plans to sell a mix of $10 million of refunding and new-money revenue bonds tomorrow through Douglas County.
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A portion of the sale will refund $4.1 million of debt -- part of a $20 million issue sold in 1993, according to Jim Fox, senior vice president and manager with Ameritas Investment, the underwriter on the deal. Those bonds allowed the museum to expand its building in Omaha, he said.
The sale is set for Thursday but could change, depending on market conditions, Fox said.
The new-money proceeds of the issue will provide about $2.5 million for land acquisition, $2.5 million for the purchase of works of art, and $1.7 million for general renovations, Fox said.
The museum, established in 1928, is the largest such institution in the area. Its collections include European and American art, with special emphasis in western American art. The Joslyn owns the Prince Maximilian and Karl Bodmer collection of prints, drawings, and manuscripts from the explorers' expedition across the American West from 1832 to 1834 on behalf of the American Fur Company, owned by John Jacob Astor.
The museum's first major sale of bonds was in 1993, Fox said. That sale allowed the museum to expand its building, which provided a major boost for the institution, with attendance after the renovation jumping about 33%. The 1993 bonds were repaid using donations raised through community events, which raised approximately $45 million.
"Omaha has a very strong base of giving within the community," Fox said.
That's a key factor for many investors in "cultural bonds," according to market participants. Community support and an institution's endowment are strong indicators of credit strength for such debt, said Kenneth Kerznar, a managing director who heads the cultural institutions sector at Chicago-based Bank One Capital Markets Inc.
Cultural bond sales generally fall into two categories -- the infrequent borrowers who use a letter of credit or bond insurance to access the market and the double and triple-A institutions with "huge endowments," Kerznar said. About 80% of sales are by the former, he added.
The Joslyn Museum bonds will carry insurance from MBIA Insurance Corp.
The museum is putting up a pledge of its unrestricted assets as the primary security, Fox said, and currently has approximately $16 million in foundation assets. The bonds are secured by a first mortgage on the facility and a negative pledge on the art collection, he said. The museum's collection was appraised in excess of $60 million when the bonds were sold in 1993, he said.
"We expect to have very good reception," Fox said. "Any time a bond is issued out of the city, it receives very good reception from individuals and institutions."
Though investors do not usually express an exclusive interest in buying cultural bonds, Kerznar said, the bonds often are attractive to a national investor audience rather than to local investors solely. The bonds may be mixed in with a portfolio of higher-education bonds.
In assigning its underlying rating of A-minus for Joslyn, Standard & Poor's cited the museum's regional prominence, measured in collection size, attendance, and membership.
The strength of cultural bonds in general can be difficult to quantify, Kerznar said, adding that the wide diversity of such institutions precludes any set criteria that can be applied to all bonds.
"If you look at museums as a whole, they run the whole gamut from the children's museum in a storefront to the J. Paul Getty Museum in Malibu," he said. "It's very difficult."
Neither Moody's Investors Service nor Fitch rate the bonds.
Analysts have tried to set specific standards for a category of bonds sold by cultural institutions, Kerznar said. Most often the institutions come under the heading of museum, but cover a wide variety of services -- a zoo will be quite different from a science museum, for example.
"Endowment is the key one," Kerznar said. "The more cash people have, the stronger they will be."
Another key is the diversity of the revenue stream to ensure the museum can handle unexpected disruptions, he said.
Standard & Poor's cited the "discretionary nature" of the museum's business as one of its offsetting factors in rating the credit. It also cited Joslyn's significant reliance on annual fundraising to support museum operations and pay debt service, a small endowment given the size of the museum, and low earned income from admissions and membership relative to total operation expenses.
The strength of the rating was based on the balanced operations of the Joslyn, strong liquidity, and the record of community fundraising, Standard & Poor's analysts said. Also, the museum has no additional plans for debt and the term of the bonds will be just 12 years, the agency said.
"It's a relatively short issue, which is keeping in step with the board's goals and objectives to not take significantly long-term debt," said Ameritas' Fox.
Baird, Holm, McEachen, Pedersen, Hamann & Strasheim are acting as bond counsel on the sale.
