Should art museums, or any museums, engage in high finance?
That’s the question I had to ask about the Asian Art Museum in San Francisco, which you’ll recall reached a debt-restructuring agreement a few weeks ago. The deal, in which the city of San Francisco will guarantee bonds that will be floated to replace the troublesome, variable rate bonds that nearly bankrupted AAM, is complicated. And so was the 2005 deal — involving the variable rate bonds, hedged with an interest rate swap — which replaced the 2000 deal.
If your head hurts or your eyes have glazed over already, I understand. You’re helping me prove my point: Even if the AAM’s gamble to reduce its interest payments had paid off, I’m not sure it was worth it.
I lay the whole situation out in an article in tomorrow’s Wall Street Journal — liquidity squeeze, collateral returns, letters of credit, etc. But as John Nelson, a managing director at Moody’s, told me of the AAM’s maneuver “It’s very different from a fixed-rate deal, where you know the cost up front.”
Many people and many institutions got caught up in the financial mess of the last decade, but not every one of them was a helpless victim — which is how the AAM sometimes portrays itself. I think non-profits should probably be more conservative in financial matters than other institutions, and as Nelson said, Moody’s studies show that museums, among all non-profits, are most vulnerable to decreased revenue intake during recessions.
All in all, the Asian Art Museum isn’t doing badly, operationally. Attendance is fine — not what it projected when it moved to the new building, but as good as a move would realistically suggest.
It has a tough road ahead in fund-raising to get back to health. But it does have the breathing room now. It should remember that good exhibitions, good programs beget donors — often with requiring a push, of course, but nonetheless gets them.
I wonder two things: is any other museum next? I couldn’t one exactly like this. And, when is someone going to try this again? Never, I hope.
Photo Credit: Courtesy of the Asian Art Museum