Chronically behind in their fundraising, Orange County Performing Arts Center officials said Tuesday that they will issue $180 million in bonds to ensure completion of a theater and a 2,000-seat concert hall.
Center officials said they have raised $117 million in cash and pledges toward their $200-million goal to pay for the Renee and Henry Segerstrom Concert Hall, the 500-seat Samueli Theater and an education center.
Officials previously said they had hoped to raise $130 million by the end of 2003. But in the past 11 months they have raised only about $5 million, Jerry Mandel, president of the Performing Arts Center, confirmed.
"We are behind where we wanted to be, but the economy changed on us," Mandel said. "We're doing this so we can finish the building."
Construction on the new building began in July. "I can tell you, unequivocally, it will open in September 2006," Mandel said.
Center officials decided to seek the financing because interest rates are so low and are expected to rise in the next few months, Mandel said. Previously, Mandel had said the center would not consider a bond offering until it had raised $150 million.
Mandel said $80 million of the bond proceeds will be used for construction, $20 million is earmarked for bond sale expenses and the balance will be invested.
The tax-free, variable-interest bonds are expected to be issued in early July and will be repaid over 30 years through fundraising and other revenue sources, including profits from investments.
If bought today, the bonds would pay investors about 1.1% annual interest, said Brian Finck, the Performing Arts Center's chief financial officer. The offering is being aimed at institutional investors, with a minimum sale of $25,000, Finck said.
The bonds are being underwritten by Bank of America Securities and Citigroup, insured by the Financial Guarantee Insurance Corp. and will carry a AAA rating, he said.
Unlike corporations or governments, the center cannot legally issue bonds. They will be issued by the California Infrastructure and Economic Development Bank, a common practice. The state will not be liable if the center defaults, Finck said.
It is not unusual for nonprofit organizations to tap the bond market for capital.
Even the wealthy J. Paul Getty Trust borrowed $275 million to pay for the renovation and expansion of the Getty Villa art museum in Pacific Palisades.
According to a Performing Arts Center news release, other nonprofits that have offered bonds include Carnegie Hall in New York, the M.H. de Young Memorial Museum in San Francisco and the Chicago Symphony Orchestra.
Fundraising for the new building has lagged since 1999, when center officials solicited a $50-million naming gift to start the campaign.
The design process stopped three months later for lack of financing. Ten months later, South Coast Plaza shopping center developer Henry Segerstrom donated $40 million, the largest gift to the arts in Orange County. Segerstrom previously had donated the 5 acres where the new center is rising.
Since then, fundraising goals for the new center have seldom been met.
Like other nonprofits, the Performing Arts Center suffered when philanthropy plummeted after the stock market collapsed, and then after the recession and Sept. 11, 2001, terrorist attacks.
Mandel said the uncertainty over the Iraq war and high gasoline prices have not helped the center's efforts.
Henry Goldstein of the Trust for Philanthropy of the American Assn. of Fundraising Counsel, said fundraising efforts nationwide have been holding generally steady. "I wouldn't be wildly optimistic, but I wouldn't be wildly pessimistic," he said.
Mandel said center officials have been seeking gifts of at least $1 million. Most large pledges are paid over time and some donors have sought extensions, Mandel said, although almost no one has backed out.