CHICAGO — The St. Louis Art Museum today will price $20.4 million of fixed-rate cultural facilities revenue bonds and will follow up as early as next week with $25 million of variable-rate debt — a year after postponing the sale amid the market turmoil of late 2008.

Proceeds from bonds, which will be issued through the museum’s affiliated foundation, will help finance a $130 million expansion plan that will increase gallery and public space by 30%, officials said.

JPMorgan is senior manager on the offering, with Edward Jones and Loop Capital Markets LLC rounding out the underwriting team. Public Financial Management and WM Financial Strategies are co-financial advisers to the museum. Gilmore & Bell PC is bond counsel.

The finance team began taking retail orders yesterday on $20.4 million of fixed-rate debt, opening it for institutional sales today. A $25 million variable-rate series is expected to price within the next few weeks.

The variable-rate bonds will likely be backed by a letter of credit from U.S. Bank NA. Part of the $25 million is considered bridge financing for gifts that the museum anticipates receiving from donors. That debt will be retired within three years, according to Moody’s Investors Service.

The St. Louis Industrial Development Authority will act as conduit issuer on the deal. The agency approved the borrowing at its Nov. 12 meeting, where museum chief financial officer Carolyn Schmidt told the board that the market has improved enough to sell the bonds after the deal had been postponed for nearly a year. Construction is set to begin before the end of 2009, Schmidt told the authority.

Moody’s assigned an A1 rating to the debt and affirmed its Aa3 issuer rating on the museum.

The issuer rating reflects the combined strength of the museum and the foundation, while the bonds are an unsecured obligation of the foundation combined with a lease obligation of the museum, analysts said.

Standard & Poor’s rates the debt A-plus, according to bond documents.

The museum, founded in 1879, is located in the 1,300-acre Forest Park, an urban park on the western edge of St. Louis that was home to the 1904 World’s Fair. It benefits from a leading market position that drew more than 425,000 visitors last year and is governed by a prominent board and supported by strong fundraising. Average annual gift revenue has totaled $20 million between 2006 and 2008. As of last year, the museum’s financial resources totaled $182 million, 81% of which is expendable, Moody’s said. 

The institution also receives significant public support from voter-supported tax levies in the A2-rated city of St. Louis and the Aaa-rated St. Louis County, with property tax revenue accounting for roughly 60% of its operating revenue.

The reliance on property taxes has boosted the museum in recent years as assessments have grown, but could leave it vulnerable if assessments begin to decline, Moody’s analysts said.

Philanthropy is expected to finance at least $80 million of the $130 million expansion, restricting the need for long-term borrowing, the rating agency said.

“Moody’s believes the museum is well positioned to continue its pattern of solid operating performance,” analysts said in a recent report. “Regarding the risk of unexpected operating expense increases following the opening of the planned building expansion, which will add over 82,000 square feet, we believe management has made reasonably prudent projections, including greater operating expenses and conservative assumptions around revenue sources.”

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