SAN FRANCISCO — The Asian Art Museum Foundation and San Francisco city officials said they reached a deal Wednesday with JPMorgan Chase & Co. and insurer MBIA to restructure $120 million of variable-rate bonds, securing the financial stability of the largest collection of Asian art in the Western world.

The proposal, which still needs approval from the San Francisco Board of Supervisors, would have JPMorgan forgive $21 million and issue new bonds at a fixed rate of 4.6% at a 30-year term, Controller Ben Rosenfield said during a news conference at the Asian Art Museum.

The swap agreement with the bank also will be canceled and the $13 million of collateral will be returned to the foundation. A portion of the principal on the new bonds will also be deferred the first two years, according to a statement released Wednesday.

MBIA, which insured the bonds through its subsidiary National Public Finance Guarantee, also reached an agreement that is subject to non-disclosure, the city’s public finance director, Nadia Sesay, said in an interview.

San Francisco will provide an assurance agreement to replace MBIA’s insurance for the bonds, giving the foundation its credit rating.

During the news conference, a throng of city leaders, including Mayor Gavin Newsom and former Mayor Willie Brown, announced a capital campaign to raise $20 million shore up the museum’s debt service.

“We are very proud of this museum,” Newsom said. “We recognize that we need to do things differently so we don’t find our way back here in a couple of years.”

At the end of last month, city officials and the foundation, the fundraising arm of the Asian Art Museum, hashed out a 30-day forbearance agreement on the obligations with JPMorgan and MBIA, which gave the parties time to come to an agreement after the letter of credit backing the bonds expired. That expiration turned them into bank bonds.

Moody’s Investors Service cut the foundation’s underlying rating to junk status due to the expiration of the letter of credit from JPMorgan, dropping it to Ba1 from Baa1, and kept the credit on negative watch for a possible further downgrade.

The move may have triggered accelerated payments, requiring the foundation to repay the bank bonds in accelerated quarterly payments over five years. Annual payments would have been $29.85 million plus interest, according to Moody’s.

Analysts said the foundation’s modest philanthropic support — $7.8 million in 2009 — and operating margins around 3% would provide little help in making accelerated payments on the bonds.

The foundation’s operating revenue totaled $27.7 million in fiscal 2009, with $36.7 million of monthly liquidity. Its cash and investments totaled $86.2 million.

The foundation has access to a cash-funded debt-service reserve fund valued at $7.7 million, equal to one year of debt service. There is no mortgage or deed of trust on the land or building occupied by the museum. Moody’s said the foundation did not disclose its draft fiscal 2010 financial statement.

The $120 million of bonds, which were issued through the California Infrastructure and Economic Development Bank.

The insurer’s downgrade during the financial crisis to a level below Aa3 is the reason the foundation had to post $20 million in collateral with the bank.

Last month, San Francisco city attorney David Herrera sent a shot across the bow of both JPMorgan and MBIA in the form of threatening letters about their involvement in the museum’s financial crisis.

In the letter to JPMorgan, Herrera — who is running for mayor of San Francisco — said the investment bank had a conflict of interest as it was the primary architect of the current financing and serves or has served as the foundation’s underwriter, remarketing agent, swap counterparty, investment portfolio manager and letter-of-credit provider.

Herrera said the bank has reaped at least $13 million from the foundation in fees and other charges related to its roles.

“Every negotiation is complicated and this was no exception,” Herrera said after the press conference. “I think both MBIA and JPMorgan stepped up to the plate and engaged us in very constructive dialogue.”

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