Mortgage crisis hits cultural institutions in Southern California
Soaring costs of bonds lead to big losses at the Getty, Los Angeles County Museum of Art, the Orange County Performing Artscenter, Natural History Museum of Los Angeles County and the Colburn School.
Some of Southern California's major cultural institutions are bleeding because of the sub-prime mortgage crisis, with combined losses of more than $3 million -- and mounting -- since February, when their seemingly safe and innocuous construction bonds turned into fiscal leeches.
Among those scrambling to escape interest payments that have more than doubled are the Los Angeles County Museum of Art, the Orange County Performing Artscenter, the Natural History Museum of Los Angeles County and the Colburn School.
The soaring rates -- which are hitting an array of nonprofits as well as municipalities and government agencies -- reflect doubts about insurance companies that issued policies guaranteeing so-called auction-rate bonds.
Damaged by huge obligations in the sub-prime mortgage market, insurers such as Financial Guaranty Insurance Co., which backed the LACMA, OCPAC and Natural History Museum issues, have been downgraded by financial rating services such as Standard & Poor's. With the bond insurance no longer ironclad, investors are demanding higher interest -- if they are willing to bid at all.
"It's a completely irrational market right now," said Ann Rowland, LACMA's chief financial officer.
The J. Paul Getty Trust reported oozing more than $650,000 on auction rate bonds since January before it put a tourniquet in place Wednesday. Using its clout as the nation's richest arts foundation, with a triple-A credit rating, the Getty reconfigured $270 million in suddenly dicey bonds it had issued last year, mainly to finance art purchases.
The four other Southern California institutions don't have that luxury. All have recent or current construction projects, paid for with bond issues ranging from the Natural History Museum's $84.4 million to LACMA's $376.2 million. The tax-free bonds have their interest rates reset weekly. The rates cruised in the 3% to 4% range through 2007 -- and even lower in previous years -- but have jumped as high as 11% for LACMA, 10% for the Natural History Museum and almost 7.5% for the Costa Mesa performing arts center and the downtown music school.
The Getty's bonds spiked as high as 9.9%, Chief Financial Officer Patricia Woodworth said, before being converted to another form of debt that will have a fixed rate of 1.7% for the next year.
