Lincoln Center for the Performing Arts Inc. began refinancing its auction-rate debt yesterday with a $151.3 million refunding ahead of plans to sell up to $200 million of new money as soon as next month. The refunding will close today and both offerings are being sold through the Trust for Cultural Resources of the City of New York.
The proceeds of the planned bonds will be used as gap financing as part of a $800 million redevelopment project at the center that will create a pedestrian promenade at West 65th St. and enhance or expand existing facilities.
The center has raised $600 million for the project through a fundraising campaign, according to the preliminary official statement. The funds are expected to come in over several years and about half will come from city, state, and federal grants. Lincoln Center expects to repay $150 million of its debt in 2010 and 2011, according to a Standard & Poor's credit report.
"The issuance of bonds bridges the timing of pledges that have been received with the actual receipt of cash, a common practice in the nonprofit world," Lincoln Center vice president for finance and chief financial officer Daniel Rubin said in a statement. "Thus, the bonds enable us to continue our redevelopment projects in an effective, timely manner."
Lincoln Center, a 16.3-acre campus on Manhattan's Upper West Side that is home to 12 arts organizations including the Metropolitan Opera and the Julliard School, was created as a nonprofit in 1956. It has $162.8 million of debt outstanding.
Lincoln Center expects the $200 million of new money to price at the end of next month or beginning of September. The bonds are expected to be sold as VRDBs with weekly resets. Morgan Stanley and Banc of America Securities LLC will serve as underwriters and remarketing agents. Nixon Peabody LLP is bond counsel.
The refunding bonds sold yesterday came in two sub-series of variable-rate demand bonds maturing in 2035. Morgan Stanleyis underwriter and remarketing agent on Series 2008A-1 which has a par of $113.5 million. Banc of America is underwriting and remarketing the Series 2008A-2 bonds, which have a par of $37.8 million. The bonds will be enhanced with a direct pay letter of credit from Bank of America, N.A. Orrick, Herrington & Suttcliffe LLP is bond counsel.
The ARS, which were issued in three subseries in 2006, began the year resetting at rates between 3.5% and 3.75% but spiked as high as 13% in mid-February as the auction-rate market as a whole experienced widespread failures. Using a line of credit from Bank of America, Lincoln Center began buying its own securities in May, which drove the resets below 2%.
The refunding removes Financial Guaranty Insurance Co. insurance but keeps in place a $95 million swap with Morgan Stanley and a $55 million forward swap with Bank of New York-Mellon that starts in September.
Standard & Poor's assigns A-plus rating with stable outlook to Lincoln Center, citing strong management and governance, a balanced operating performance, adequate liquidity, strong fundraising and its unique role among cultural institutions in the city. Offsetting factors include dependence on gifts and contributions to pay debt principal and a $233 million increase in the cost of the main part of the redevelopment project.
Moody's Investors Service rates Lincoln Center A2 with positive outlook. Fitch Ratings does not rate Lincoln Center.
