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OC arts center hit by bond blues

Times Staff Writer

The Orange County Performing ArtsCenter suffered an unprecedented $13-million deficit during the recently ended 2007-08 fiscal year, officials reported Thursday -- not because ticket sales or donations went sour, but because of a blowback effect from the subprime mortgage crisis that vastly increased interest and other costs of the bonds the Costa Mesa center had issued to build the Renee and Henry Segerstrom Concert Hall.

The bulk of the deficit came from $8.8 million in losses the center declared on the insurance policy it bought to secure what it thought would be an ironclad AAA rating for the bonds -- a top rating that normally would have lowered its interest payments and saved money over the 30-year life of the bonds.

But the insurer, Financial Guaranty Insurance Co., also wrote policies on billions of dollars’ worth of subprime home mortgages that went bad earlier this year as part of the nation’s ongoing financial crisis. With its own financial rating downgraded, it no longer could keep its guarantee to investors who bought the $265 million in OCPAC bonds that it would pay them what they were owed in the event of a default. Terrence Dwyer, the center’s president, said Friday that the insurance policy is now worthless and the money sunk into it had to be reported as a loss. Adding to the woes, he said, was about $4 million in unanticipated extra interest costs the center had to pay out over about five months as the interest rates skyrocketed from about 3% to 4% to as high as 10%.

The center refinanced its bonds on July 2, paying a group led by Bank of America a fee to step in and guarantee the bonds to assure lower interest rates. Officials said the current interest rate is 2.5%.

The bond losses did not lead to layoffs or programming cuts at the center, Dwyer said, nor are any anticipated, although “we budgeted as lean as possible” for the new fiscal year that began July 1.

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Separately, the center reported that it eked out a $52,000 surplus on its regular operations. It spent $57 million, earned $45 million from ticket sales and rentals, reaped $10 million in donations and spent $2 million from an endowment now valued at $47 million.

An additional $6 million was raised for the endowment, and donors also gave $11.5 million to help retire the concert hall debt, which still stands at $52 million.

Dwyer said that carrying the large debt has not resulted in cutbacks, but the goal remains to pay it off “as soon as possible” to build up a kitty that will help pay off the bonds, freeing up additional money for other purposes, such as expanded programming.

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mike.boehm@latimes.com


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