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California Infrastructure & Econ. Dev. Bank -- Moody's assigns A3 to Los Angeles County Museum of Art, CA's series 2021; outlook stable

·13 min read

Rating Action: Moody's assigns A3 to Los Angeles County Museum of Art, CA's series 2021; outlook stable

Global Credit Research - 16 Dec 2020

New York, December 16, 2020 -- Moody's Investors Service has assigned A3 ratings to Los Angeles County Museum of Art, CA's (LACMA) proposed around $271 million Refunding Revenue Bonds (Los Angeles County Museum of Art Project), Series 2021A in the amount of $100 million (Fixed Term Mode), Series 2021B in the amount of $100 million (Fixed Term Mode) and Series 2021C in the amount of $71 million (Index Mode). The mandatory tender dates for all series will be at least three years. The bonds will be issued through the California Infrastructure and Economic Development Bank. We have also affirmed the A3 ratings on LACMA's Series 2017A and B bonds. The outlook is stable.

RATINGS RATIONALE

The assignment and affirmation of an A3 rating to the Los Angeles County Museum of Art (LACMA), reflects its very strong relationship with the County of Los Angeles (Aa1 stable issuer rating) resulting in consistently good operating and capital support. It has notable and growing brand strength highlighted by rising philanthropy, which has in turn contributed to very strong reserves. The museum has successfully raised $655 million for a new museum building that includes a $125 million county contribution and private donations of $530 million that have all been committed. Visitorship has been stable at around 1.3 million on average over the past five years through fiscal 2019 but declined as a result of the pandemic-related closures to around 600,000 in fiscal 2020.

Offsetting credit factors include LACMA's very high debt relative to both cash and investments and to operations, and an all variable rate debt structure with a covenant with modest headroom. Increases in leverage in fiscal 2021 due to a $300 million loan from the county - to act as bridge funding for additional fundraising and pledges - brings the museum to its tolerance level for debt at the current rating. There is some execution risk associated with this large-scale project including finalizing funding and overseeing construction of a complex project.

We regard the coronavirus outbreak as a social risk under our ESG framework, given the substantial implications for public health and safety. LACMA's ability to manage through the pandemic is enhanced by a relatively low reliance on earned revenue which moderates the revenue impact from closures on its bottom line. Additional fundraising for $95 million, to complete the $750 million campaign, however, could slow as a result of the economic downturn.

RATING OUTLOOK

The stable outlook reflects expectations of growing philanthropy, generally stable liquidity and supportive financial markets, maintenance of sufficient covenant headroom, and continued county support. The stable outlook also assumes no additional debt, including any related to the replacement of LACMA's older buildings, without substantial additional gifts and revenue growth.

FACTORS THAT COULD LEAD TO AN UPGRADE OF THE RATINGS

- Meaningful growth in unrestricted liquidity significantly increasing the headroom under the financial covenant on a sustained basis

- Substantial reduction in financial leverage

FACTORS THAT COULD LEAD TO A DOWNGRADE OF THE RATINGS

- Narrowing of liquidity or significant reduction in headroom to meet the financial covenant

- Investment market declines that lead to erosion of wealth and cushion for debt

- Inability to meet schedule for pledged revenues and planned fundraising

- Additional debt issuance

- Failure of Los Angeles County to comply with its support agreement

LEGAL SECURITY

All bonds are on parity and an unconditional general obligation of LACMA. The bonds have recourse (on an unsecured basis) to the museum's general pool of assets in the event remedies are exercised against LACMA; excluded is the museum's art collection.

USE OF PROCEEDS

Refinance Series 2017A and B and a portion of Series 2013B, C and D and pay the cost of issuance.

PROFILE

Located on Wilshire Boulevard in Los Angeles, Los Angeles County Museum of Art is a large, encyclopedic art museum with over 140,000 objects and 603,000 thousand visitors in fiscal 2020. The museum is comprised of its East Campus, the original 1965 site owned by the County of Los Angeles, and the newer West Campus. LACMA has a strong relationship with the county and receives annual operating support under a 99-year funding agreement.

METHODOLOGY

The principal methodology used in these ratings was Nonprofit Organizations (Other Than Healthcare and Higher Education) published in May 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBM_1160889. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Debra Roane Lead Analyst Higher Education Moody's Investors Service, Inc. 7 World Trade Center 250 Greenwich Street New York 10007 US JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Eva Bogaty Additional Contact Regional PFG West JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653 Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A JOURNALISTS: 1 212 553 0376 Client Service: 1 212 553 1653

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