The troubled Sports Museum of America in lower Manhattan is seeking bondholder approval to allow $57 million of debt initially sold to finance its development to be purchased at less than 19 cents on the dollar to stave off the museum's closure.
In 2006, the New York Liberty Development Corp. issued $52 million of tax-exempt Liberty bonds and $5 million of federally taxable bonds on behalf of the for-profit borrower, National Sports Museum Management LLC, for the project, then called the National Sports Museum.
"Since opening in May 2008, the museum has suffered from below-anticipated attendance that has resulted in severe cash-flow problems," Frank Corcoran, economic development program administrator for the Empire State Development Corp., said during a presentation last week. "The current management of the museum believes that restructuring the LDC's revenue bonds among other things will provide a means of saving the museum from closure."
On Thursday the issuer's board gave consent to the deal as well as to changes to the lease that would allow the museum to pay 50% of three months past-due rent, remove an eviction judgment, reduce future rent, and reduce the amount of leased space at 26 Broadway where the museum is located. The board also approved the cancellation of $7 million of bonds as part of the transaction. The issuer is a subsidiary of the ESDC.
National Sports Museum Management defaulted on its bonds in September, according to a material event notice filed at the time.
The museum now faces eviction, the ESDC said.
If bondholders agree, SMA Investors LLC, a company which was incorporated in New York State in November comprising equity partners in the for-profit borrower, will pay investors $1.85 million and $8.7 million of reserve funds currently held by the trustee Bank of New York Mellon.
The restructuring transaction required special approval because the bonds were sold through private placement under Rule 144A under the Securities Act of 1933 to qualified institutional investors, and SMA Investors is not a qualified institutional buyer.
JPMorgan, which underwrote the initial sale, will handle the transaction.
Corcoran said that a majority of the bondholders had agreed to the sale. If the borrower is not able to get 100% approval from bondholders, then a new proposal would have to be presented to the trustee and approved by the issuer, said ESDC spokesman Warner Johnston.
The bonds were sold under the Liberty bond program, which Congress enacted to revitalize New York City following the terrorist attacks of Sept. 11, 2001.
The total cost of the museum project was approximately $92.5 million, according to the private placement document.
According to Thomson Reuters eMAXX data, 17 institutional investors hold the bonds, including Dreyfus Corp., AllianceBernstein LP, MFS Investment Management, BlackRock Investment Management LLC, and Nuveen Asset Management Inc.
The museum was founded by Philip Schwalb, and for a time BlackRock president Robert Kapito was chairman of the board, though he has since stepped down.
The museum, which expected to reach attendance records similar to the Intrepid Sea-Air-Space Museum within its first two years, has struggled to meet those goals.
In the initial private-placement document, the borrower said: "New York City currently lacks a broad selection of family-oriented museums. The lack of competition in this particular segment of the market offers an opportunity to attract families who reside in or are visiting the metropolitan area."
Calls to the museum were not returned by press time.