U.S. Jewish History Museum Goes Broke Over Debt for New Home

(Bloomberg) -- The National Museum of American Jewish History is the latest exhibition hall that can't pay its debts.

The Philadelphia museum filed for Chapter 11 bankruptcy protection and plans to restructure about $30 million of bonds sold through a local government agency five years ago to refinance debt taken on to build its current facilities. Misha Galperin, the interim chief executive officer, said in a statement that the debt “has been an unsustainable burden on the museum” and the bankruptcy will “allow us to go forward with exciting exhibits and programming.”

Museums are among the riskiest borrowers in the tax-exempt bond market since they're vulnerable even in good economic times if if there aren't enough interested visitors. The journalism-focused Newseum closed its doors in December. The National Law Enforcement Museum in Washington, D.C., defaulted on its bonds last year and Philadelphia's Please Touch Museum for children was forced to skip debt payments in 2014. New York's American Folk Art Museum struggled financially until it was bailed out when the Museum of Modern Art agreed to buy its new building.

“A museum needs to attract new customers every day, competing against the weather, other active entertainment options, people's cellphones and laziness,” said Matt Fabian, a partner at Municipal Market Analytics who tracks bond defaults.

Museums and other cultural institutions like music halls and sports stadiums frequently raise low-cost funds in the tax-exempt bond market. Earlier this year, the Academy of Motion Picture Arts and Sciences sold debt to construct a museum in Los Angeles dedicated to the film industry. In 2018, an agency in Oklahoma issued debt to finance a museum for the American Indian Cultural Center Foundation.

The National Museum of American Jewish History, established in 1976, is a Smithsonian affiliate that's situated on Philadelphia's Independence Mall, one of the city's major tourist attractions. It generates its revenues through a combination of sales of memberships, tickets and charitable contributions. According to court documents, the museum has generated approximately 20% of its operating budget from earned revenue, leaving it relying heavily on donations.

The bonds to be involved in the restructuring were issued in 2015 by the Philadelphia Authority for Industrial Development to refinance a construction loan for the museum's current home. Court documents say that $16.3 million of the debt is held by BNB Bank, with the remainder held by 12 individuals, trusts or foundations, many with ties to the organization.

Since opening in the new location in 2010, the museum's revenue from ticket sales and events has been inconsistent, according to court documents. By early 2019 it became clear to the board that the museum wouldn't be able to keep up with its debt payments. After nine months of unsuccessful negotiations, bankruptcy was seen to be the best option to keep the museum open and attract donor support, according to the documents.

The case is Museum of American Jewish History, d/b/a National Museum of American Jewish History, 20-11285, U.S. Bankruptcy Court for the Eastern District of Pennsylvania (Philadelphia)

--With assistance from Mallika Mitra and Jeremy Hill.

To contact the reporter on this story: Danielle Moran in New York at dmoran21@bloomberg.net

To contact the editors responsible for this story: Elizabeth Campbell at ecampbell14@bloomberg.net, William Selway, Dave Liedtka

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