Advertisement

Segerstrom Center's financial picture troubled

Arts center's fundraising campaign remains $52 million short of the $240 million it seeks.

March 11, 2011|From LATimes.com

Carrying debt during turbulent economic times continues to cloud the financial picture for the Segerstrom Center for the Arts in Costa Mesa, which on Tuesday saw Standard & Poor's Financial Services downgrade the investment outlook on its $232.5 million in construction bonds from "stable" to "negative."

S&P analysts concluded that while "some aspects of the center's operations have improved over the last year," it hasn't been enough to offset slow progress on a fundraising campaign that remains about $52 million short of its $240-million goal. The bonds were issued to ensure completion of the Renée and Henry Segerstrom Concert Hall, which opened in 2006. The debt is separate from a $1-million recession-fueled deficit the center said this week it had eliminated.

While the analysts report that the center believes the campaign has been "reinvigorated" by $4 million in recent pledges, they remained concerned about fundraising prospects of a campaign now in its 12th year. Furthermore, S&P sees "significant risk" from the looming July 2 expiration of bank guarantees, known as letters of credit, that are intended to reassure investors so they won't demand higher interest on the variable-rate bonds. The banks promise to pay the bondholders should the center default.

Advertisement

The center plans to renew two of its three letters of credit, its spokesman, Todd Bentjen, said Tuesday. But if the banks should balk, the center could face either higher payments to secure the letters or higher interest rates that would kick in if they expire.

The center's annual interest payments on its bonds averaged $4 million the past two years. Standard & Poor's prediction that those payments could skyrocket to $9 million a year in 2016 if the fundraising campaign doesn't reignite.

Recently, the center has had to pay higher interest rates on some of its bonds because its third letter of credit went south — an Irish bank that stood behind $60 million worth of bonds is no longer creditworthy itself, due to a burst mortgage bubble in Ireland.

In 2007-08, the bursting of the U.S. mortgage bubble cost the center dearly in a similar scenario — the insurance company that had stood behind its bonds took a bath, its guarantee became worthless and interest rates on the center's bonds soared as high as 7.5% as it saw annual costs balloon from $5.9 million to $8.8 million.

Daily Pilot Articles Daily Pilot Articles
|
|
|