July 29, 2019
Visitors entering the Field Museum’s ornate main hall are greeted with an arresting sight: A 122 foot-long cast of a titanosaur, the largest dinosaur ever discovered. It’s accompanied by some of its real bones, including an eight-foot-long femur, as well as a flock of flying pterosaur models and four hanging gardens containing over 1,000 plants.
Named Maximo, the titanosaur lived 101 million years ago in Patagonia, Argentina eating plants. Today, it is the star exhibit in one of the world’s leading natural history museums, driving attendance and revenue, alongside SUE, the most complete T-Rex ever uncovered.
With 1.3 million visitors last year, attendance comprised around a quarter of Field Museum’s 2018 revenue, which totaled $68 million. But the museum faced a challenge: Its debt service costs had increased since the implementation of 2017 U.S. tax reform and this, in turn, was pressuring its operations.
Like other not-for-profits, the Field Museum had previously issued bonds that gave tax-exempt status to the interest earned by the purchasing banks. With the lowering of the corporate tax rate as part of the Tax Cuts and Jobs Act, the value of tax-exempt interest had decreased, resulting in higher interest costs and fees owed by the museum.
“The issue was its existing bonds had an upward adjustment of interest and fees, so we provided a solution that allowed the museum to refinance the debt and lower its debt service costs,” says J.P. Morgan’s Michelle Salomon, who led the transaction for Public Finance.
Founded in 1893, the museum’s name honors retail entrepreneur Marshall Field in recognition of the $1 million contribution he made towards the founding of the museum. Over the decades, the Field Museum has amassed nearly 40 million natural objects and man-made artifacts, emerging as one of Chicago’s preeminent cultural institutions. Less than 1% of the museum’s collections are on public display and the rest are used in groundbreaking scientific research on everything from dinosaurs in Antarctica to Peregrine falcons in Chicago, the Field’s own city.
This public value formed part of the investor presentation launched by J.P. Morgan as it sought to generate interest among investors. The firm proposed the museum use its strong A2/A credit ratings to issue $87 million in tax-exempt floating rate notes (FRN), an instrument that pays interest at a fixed spread above a floating benchmark. Crucially, the strategy accomplishes several of the museum’s goals, including reducing expenses.
“As sole underwriter, we worked with the museum to develop a comprehensive investor outreach program, which included posting a slides-only investor presentation, viewed by over 30 buy-side firms,” says Salomon.
The FRNs have a final maturity in 2034 and priced at an initial spread of 50 basis points to one-month LIBOR, reflecting solid investor demand.
The deal represents the latest work by J.P. Morgan’s Public Finance team, which has also been instrumental in working with other of the City of Chicago’s 11 “Museums in the Park”, including the Art Institute of Chicago.
“These institutions are a vital public resource. We are proud to be supporting them and the cultural enrichment they provide their local communities and millions of visitors from around the world,” says Jamison Feheley, head of Public Finance Banking. “We expect other not-for-profits affected by tax reform to consider similar refinancings.”