Payments ease at arts institutions

The sub-prime mortgage crisis continues to inflict collateral damage on several major Southern California cultural institutions -- but the financial bleeding has slowed since late March, when they were forced to pay more than twice as much interest as they had expected on so-called auction rate bonds they had issued to finance construction.

The Los Angeles County Museum of Art paid about $2 million in unexpected interest costs during February and March, while Terrence Dwyer, president of the Orange County Performing Artscenter, said Friday that it is cutting “discretionary” expenses and is fundraising “as aggressively as possible” to plug the hole -- expected to exceed $2 million by July -- that extra payments have created in its budget.

The financial guarantees that propped up the $330-billion nationwide market in auction rate bonds, whose interest rates are typically reset weekly by investor bidding, collapsed when insurers that backed the bonds incurred huge losses from insuring bad sub-prime mortgages and saw their financial ratings plummet.

LACMA, OCPAC, the Natural History Museum of Los Angeles County and the Colburn School saw their rates leap from the 3% to 4% range through 2007 to highs in February and March as high as 11% for LACMA.

Those rates have settled down this month: 3.67% to 4.11% during the last three weeks for the Colburn School’s $133 million in bonds and 4.22% to 5% for OCPAC’s $265 million.

Since April 2, the two county museums have gotten a hand from the county treasurer’s office, which has stepped up as a major daily bidder for their bonds, in effect setting a ceiling on their interest payments.

As of Thursday, the rate was 4.05% for LACMA’s bonds and 4.66% for the Natural History Museum’s, said Douglas Baron, assistant director of public finance and investments for the county. The county’s investment pool was holding about a third of the $376.2 million in bonds LACMA issued to pay for expansion and renovation and $56 million of the Natural History Museum’s $84.4-million renovation debt.

OCPAC’s Dwyer said the Costa Mesa center hopes to refinance its bonds by the end of May at a projected interest rate of less than 3%.

The two museums are following a similar tack. Colburn School officials have declined to comment about their plans or the effect on the music school’s finances.

This week, leaders of OCPAC’s architectural cousin, the Kimmel Center for the Performing Arts in Philadelphia -- also designed by Cesar Pelli and the late acoustician Russell Johnson -- announced several large donations that erased a $30-million construction debt that had lingered six years beyond its opening.

Dwyer acknowledged that raising large sums for a building after it has opened “is more challenging” but said “there’s reason to be hopeful” that Orange County donors will step up to retire OCPAC’s $81.5-million construction debt.

“We would all enjoy a day such as the one the Kimmel Center had,” Dwyer said.

--

mike.boehm@latimes.com