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Announcement:

Moody's affirms Nelson Gallery Foundation's (MO) Aa3 issuer rating and Aaa/VMIG1 rating on Series 2004A bonds; outlook is stable

03 Oct 2012

Gallery has $60 million of rated debt

New York, October 03, 2012 -- Moody's Investors Service has affirmed Nelson Gallery Foundation's ("NGF" or "the gallery") Aa3 issuer rating and Aaa/VMIG 1 Series 2004A bonds issued through the Missouri Development Finance Board. The 2004A bonds are supported by a Donation Agreement with the Hall Family Foundation (rated Aaa/stable), which ensures that timely debt service payments are made to investors.

SUMMARY RATING RATIONALE

The Aa3 issuer rating reflects Nelson Gallery Foundation's healthy operating cash flow margins, support from the Hall Family Foundation for debt service on the Series 2004A bonds, prudent debt and expense management, strong liquidity and, our expectation that the gallery will see future fundraising success. The rating also incorporates the gallery's high reliance on endowment and gifts for operating support, very high operating leverage, and the need to maintain operations to cover higher debt service payments in the near term given recent debt service restructure.

The Aaa rating reflects Moody's approach to rating jointly supported transactions and is based on the Nelson Gallery Foundation (Aa3) and the Hall Family Foundation (Aaa)'s credit fundamentals as well as the Donation Agreement. The rating outlook is stable.

The VMIG 1 short-term rating is based on a Standby Bond Purchase Agreement (SBPA) from JPMorgan Chase Bank, N.A. (rated Aa3/P-1) that expires on May 24, 2013.

STRENGTHS

*Well-established regional market position as a leading cultural institution in the Midwest, located in Kansas City, Missouri. In FY 2012, NGF had 418,922 total visitors, up from 370,527 the prior fiscal year. NGF is focused on expanding its membership and geographic reach. Total membership was 11,853 in FY 2012, a nearly 11% increase over the prior year.

*Large financial resource base. Total cash and investments were $382 million in FY 2012, though down 13% from the prior year due to a payoff of $40 million of debt and a negative 0% investment return in FY 2012 (ends 4/30/2012).

*Robust liquidity with $263 million in monthly liquidity, providing 220% coverage of $120 million of demand debt in FY 2012 and superb coverage of operations. Unrestricted financial resources were a strong 56% of total financial resources in FY 2012.

*Excellent operating cash flow margins, at 30% in FY 2012. Management has the flexibility to reduce expenses, as demonstrated by expense cuts made during the recession (primarily in FY 2010).

*Donation agreement from the Hall Family Foundation (HFF), which unconditionally obligates the Hall Family Foundation to pay interest and principal on $60 million of the Gallery's outstanding variable rate debt.

*Prudent debt management, evidenced by a pay-down of $40 million of debt in FY 2012 and the Series 2012A bonds (issued August 2012) that involved restructuring $48 million of variable rate debt to fixed rate mode and smoothing debt service. To date 60% of the gallery's debt is in variable rate mode. The gallery does not have any plans for additional debt issuance.

CHALLENGES:

*High leverage for non-profit institution in the Aa3 category with expendable financial resources providing only 1.48 times debt coverage in FY 2012, well below the FY 2010 median of 3.3 times for non-profits rated Aa3. Excluding the $60 million Series 2004A that are paid by the HFF, then expendable financial resources cover debt by a stronger 2.13 times.

*Heavy dependence on investment income and gift revenue, representing 52% and 25% of total operating revenue respectively in FY 2012, exposes the gallery to volatility in investment markets and the macro- economy.

*Given the amortization of the Series 2012A bonds, the gallery will have higher debt service payments from 2013 to 2025, and therefore it will be necessary to maintain satisfactory operating performance to cover these increased payments. Current operations in FY 2012 provide only 0.59 coverage of MADS (1.2 times coverage in FY 2011 when there was higher gift revenue), calculated as maximum annual debt service of all amortizing bonds excluding the Series 2004A, plus 8% of the $60 million Series 2008A bonds.

Outlook

The stable outlook reflects Moody's expectation that the Nelson Gallery Foundation will continue to boost its balance sheet coverage of debt and its operations through strong philanthropic support, and maintain operations sufficient to cover debt service, as well as the fact that there are no additional borrowing plans.

WHAT COULD CHANGE THE RATING UP

Unlikely at this time given high leverage. Marked growth in financial resources combined with a strengthened market position as demonstrated by growth of visitorship/membership revenue and increased philanthropic support.

WHAT COULD CHANGE THE RATING DOWN

Failure to maintain operating cash flow margins that cover the higher debt service now coming on line; declines in financial resources; continued low fundraising support for operations or weak investment returns leading to poor operating margins; increased debt without commensurate balance sheet and revenue growth.

RATING METHODOLOGY

The principal methodology used in this rating was Moody's Rating Approach for Not-for-Profit Cultural Institutions published in November 2004. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Information sources used to prepare the rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, and confidential and proprietary Moody's Investors Service's information.

Moody's considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history. The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

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.

Emily Schwarz
Analyst
Public Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Eva Bogaty
Asst Vice President - Analyst
Public Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's affirms Nelson Gallery Foundation's (MO) Aa3 issuer rating and Aaa/VMIG1 rating on Series 2004A bonds; outlook is stable
No Related Data.
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