SAN FRANCISCO, CA.-
Mayor Gavin Newsom, City Attorney Dennis Herrera, City Controller Ben Rosenfield, Board of Supervisors President David Chiu and the Asian Art Museum Foundation, the private fundraising arm of the Asian Art Museum
, today announced a proposal to restructure the Foundations $120 million bond debt. The five-party proposed agreement, coordinated by City Attorney Herrera, City Controller Ben Rosenfield, and City Public Finance Director Nadia Sesay with participation from the Foundation and its creditors, JP Morgan Chase and MBIA, Inc., provides long term stable financing to the Foundation, allowing the organization to continue to raise the funds necessary to support the Museums dynamic range of exhibitions and programs. The proposal will now be submitted to the Board of Supervisors, Asian Art Commission and Asian Art Museum Foundation for their consideration.
Over the years, millions of people have experienced the Asian Art Museums famous collectiontruly one of the Citys most valuable assetsas well as the rich array of public programs for all ages, including generations of school children, said Mayor Newsom. The Citys proposal for strengthening the Foundations financial position will make sure these efforts carry on for future generations.
This is a smart, carefully crafted agreement that both solves the immediate financial crisis facing the Asian Art Museum and helps guard against similar difficulties in the future, said City Attorney Herrera. This problem-solving effort took a great deal of creativity and hard work, and Im especially grateful to Mayor Newsom, City Controller Rosenfield, and the museums management. Work outs are not easy or pleasant. I m also appreciative to JPMorgan Chase and MBIA for their cooperative approach here in recognizing the need to make concessions and hammering out an appropriately balanced deal. The Asian Art Museum is a world-class cultural treasure, and it deserves the enthusiastic support from City leaders and art lovers throughout the region.
The history and legacy that the Asian Art Museum represents will continue to be a cultural icon for many visitors around the world for many years to come because of the steps that we are taking today, said Board of Supervisors President David Chiu, who will sponsor the legislation and shepherd it through the Board of Supervisors.
Home to a world-renowned collection of more than 17,000 artworks spanning 6,000 years, the Asian Art Museum is one of the largest museums in the Western world devoted exclusively to Asian art. The Museum is governed by a public/private partnership with the Asian Art Museum Foundation serving as the organizations private fundraising arm. To complete the construction of the Museums Civic Center home in the early 2000s, the Foundation adopted a common funding model: to raise funds via capital campaign, then issue bonds against the campaign commitments to finance the construction.
More recently, the Asian Art Museum Foundation found itself in technical default of bond covenants and facing the expiration of a letter of credit required to sustain the former financing arrangement. Bond rating agencies expressed concern about the Foundations ability to repay the bonds.
The Asian Art Museum Foundations investments and debtslike many nonprofitshave been rocked in recent years by the effects of the global financial crisis, said City Controller Ben Rosenfield. The proposal weve collaboratively crafted allows the Foundation to regain its financial stability so that it can continue to generate much-needed financial support to the Museum.
First, there is a restructuring of the rate and term of the Foundations bonds. JPMorgan Chase will extend a loan at a low fixed-rate of 4.60% to replace the existing variable rate bonds. Also, the term of the bonds is extended to 30 years (versus current 23 years), and a portion of the principal on the new bonds is deferred in the first two years to allow breathing room while the Foundation is restored to full financial health.
A second component of the proposal includes a reduction in the total loan principal and a return of funds to the Foundation. In addition to the benefits from the restructured bonds rate and term, the Foundation receives upfront cash concessions of $21 million, thereby reducing the outstanding principal amount to $99 million from approximately $120 million, or a reduction of 17%. Also, the current Swap agreement created in 2005 is canceled and the collateral (with a current balance of $13 million) will be returned to Foundation.
The third element requires the Foundation to launch a three-year capital campaign. The first $20 million raised in new unrestricted philanthropic commitments will be required to close the gap (assuming 6.0% return). Funds raised above and beyond this amount could be used to build the museums endowment or fund strategic initiatives. Through the leadership of former Mayor Willie Brown, City Attorney Dennis Herrera, Mayor Gavin Newsom and Supervisor Carmen Chu, a committee of civic leaders will be recruited for a capital campaign that will bolster and broaden the Foundations fundraising capacity.
On behalf of the Asian Art Museum Foundation, I express our deep gratitude to Mayor Newsom, City Attorney Dennis Herrera, Controller Ben Rosenfield, and other City officials for their leadership in facilitating a solution toward servicing the Foundations debt, stated Akiko Yamazaki, President of the Asian Art Museum Foundation. We are now well-positioned to fulfill our role in supporting the Museums future endeavors. The Foundation welcomes the leadership of the City in helping us achieve our goals, and we urge the Board of Supervisors to support this proposal.
Finally, while the Foundation remains primarily responsible for debt and pledges its assets, the City would provide an assurance agreement to replace the current MBIA insurance policy for the debt. Under this proposed agreement, the City will agree to seek funding for the Foundations bonds under certain conditions if the Foundation does not have sufficient funds. The proposal also strengthens the working relationship between the City and Foundation to ensure the Foundations debt is effectively serviced. For example, the City Controllers Office will review and offer recommendations to the Foundations annual budget.
As director of the museum, I will continue to work with both City colleagues and Foundation leadership to ensure that the public enjoyment of the museums offerings not only continues, but broadens and deepens for years to come, stated Jay Xu, Director of the Asian Art Museum.