The stars come out to pitch bond-funded Oscars museum
Few municipal bond deals have an A-List actor like Tom Hanks repping the project funded by the bonds.
But $100 million in green revenue bonds Wells Fargo Securities plans to price Feb. 20 will enjoy the reflected glamour of the Academy of Motion Picture Arts and Sciences and the museum it is building.
“There is plenty of culture to be found here in the City of Angels,” Hanks said Sunday on ABC’s Oscars award ceremony broadcast. “There are museums dedicated to art, music, history and science. And there is even one dedicated to selfies. But there has never been one dedicated to the art and science of motion pictures.”
Hanks announced during the Oscars presentation that the museum, originally slated to open in 2016, will be coming to Los Angeles’ mid-Wilshire District on Dec. 14.
There is of course considerable star power connected to the Academy — Hanks co-chairs the Academy Museum fundraising campaign with chair Bob Iger, the Disney chairman and CEO, and co-chair Annette Bening, the actress.
But its museum project has run into the unglamorous realities that befall many construction projects, resulting in a three-year delay and $100 million overrun in the project’s price tag. Fundraising initially fell short too.
The preliminary offering documents contain photos taken of the Oscars award ceremony including an overview shot, a photo of singer-actress Lady Gaga winning an Oscar in 2019, and a picture of prior Oscar winner-presenters Rami Malek, Regina King, Olivia Colman and Mahershala Ali from this year’s show.
The California Infrastructure and Economic Development Bank plays the part of conduit issuer. Hawkins Delafield & Wood takes the role of bond counsel. Orrick Herrington & Sutcliffe is underwriter’s counsel. Irell & Manella LLP and Adler & Colvin also provided legal guidance.
In 2012, plans were announced to construct the museum at the site of a former May Company department store with Renzo Piano as architect and completion expected in 2016.
The 9,000-member film industry organization has been collecting movie relics since the 1920s for scholarly research and has amassed a collection of 11 million items to be housed in the museum. The collection includes the famous ruby red slippers worn by Judy Garland in “The Wizard of Oz” as well as items from Katherine Hepburn’s and Cary Grant’s movies.
The Academy issued $349 million in revenue bonds in October 2015, also through the IBank as conduit. That sale also refunded the Academy’s $35 million Series 2008 variable-rate bonds and terminated a $21 million fixed-rate swap with Citi that had a negative $5.6 million valuation, according to a Moody’s Investors Service report.
The original 2015 deal received an Aa2 rating from Moody’s and an A rating with a stable outlook from S&P Global Ratings.
The upcoming $100 million sale holds a sole rating of Aa2 from Moody’s, with a negative outlook.
S&P withdrew its rating on Jan. 13 at the borrower's request, according to a document posted on the Municipal Securities Rulemaking Board's EMMA disclosure website.
The amount of the sale represents how much the cost of the museum project has risen over the original anticipated $383 million.
Leadership at the museum has gone through a shake-up. Bill Kramer, who was the museum’s managing director of development and external relations from 2012 to 2016, left to work at the Brooklyn Academy of Music. He returned on Jan. 1 as the museum’s chief executive officer.
The bonds received an affirmed Aa2 rating from Moody’s on Jan. 14 in anticipation of the sale, but the rating came with an outlook revised to negative from stable.
The Academy of Motion Picture Arts and Sciences "is a very strong and unique Aa2 credit,” said Doug Brown, a Wells Fargo managing director.
“The Academy has $500 million of unrestricted investments, and benefits from significant guaranteed annual broadcast revenue for the Oscars under its agreement with the American Broadcasting Company and Buena Vista International, which has rights to foreign broadcast,” Brown said. “Further, the Academy has raised over $350 million. Very few nonprofits have such strong and diversified sources of revenue to support bondholders.”
As of December, the museum had received more than $349 million in pledges and cash of its $388 million campaign goal, according to an online "road show" presentation for the deal. Of that figure, $149 million of the $317 million in commitments has been converted to cash. The Foundation expects to receive $109 million by June 2025 and $29 million by 2034, according to the road show.
Moody’s cited as a strength in its January report “the Academy’s unique market position in the entertainment industry, with strong revenue security through the annual production of the Academy Awards” and the absence of construction risk, since the project has been completed.
The Academy’s contract with ABC runs through 2028 and the international contract expires in 2024, according to Michael Osborn, a Moody’s senior analyst.
Moody’s had revised the outlook to stable last summer when the Academy said it expected to finish construction on the project, but revised it to negative in January 15 because of the need to issue additional bonds, Osborn said.
“The rise in debt was the impetus for the change to the outlook,” Osborn said. “The $100 million has an impact to the balance sheet and their financial leverage from an operations perspective.”
The revision of the outlook reflects the Academy’s rising balance sheet and financial leverage as pro forma total adjusted debt to operating revenue moves to 2.6 times, Osborn said.
The risks regarding the elevated cost of the museum construction has been mitigated, Osborn said, adding that Moody's knew about those costs.
“The bigger unknown will be costs associated with running the museum,” Osborn said. “Some have already been baked in, but operational expenses of the museum will rise once it opens.”
Construction on the museum has been completed and it will receive its certificate of occupancy this month, according to preliminary offering documents that posted Wednesday.
Hanks went on to joke that he and other actors were at the site Sunday morning working on the museum before the Oscars show.
“I was putting up some drywall, Scarlett Johansson had her orbital sander and Brad Pitt was working on the roof with his shirt off, as was Colin Jost,” Hanks said. “We are very excited about what is taking place at Fairfax Avenue and Wilshire Boulevard.”
As to why it won’t open until December when the certificate of occupancy is already in hand, an Academy Museum spokesperson said it will take several months of testing, and time to furnish and install equipment in the restaurant and get the retail store and the ticketing system up and running. None of which could be done before the certificate of occupancy was received, she said.
In the months leading up to the opening, workers will be constructing and installing the exhibits, the spokesperson said.