Cop Museum Bondholders Hoping for Rescue by Billionaire or Jon Stewart
Cop Museum Bondholders Hoping for Rescue by Billionaire or Jon Stewart
(Bloomberg) -- Send in comedian Jon Stewart. Seek a bailout from Congress. Find a billionaire.
Those are some of the ideas that investors holding money-losing bonds sold for the National Law Enforcement Museum in Washington have offered to help save the failing tourist attraction, which defaulted shortly after it opened in 2018. Visitation at the mostly-underground museum remains tepid and the National Law Enforcement Officers Memorial Fund, which oversees the museum, reported that it’s burning through about $700,000 per month.
The museum, which sold municipal bonds in 2016, quickly slid into distress amid overly optimistic projections for attendance and fundraising. The outlook for bondholders doesn’t look good: the tax-exempt securities last traded at about 25 cents on the dollar, down from 97 cents when they were first issued.
“Defaults happen, OK? But this is really quick -- from the time the bond issue came out to ‘Oh my god, the reserve fund’s been depleted,’” Mike DeLuca, an independent financial adviser at Wedbush Securities, said in an interview.
A turnaround effort “is going to take several years at best,” said Karen Tandy, the new chairwoman of the fund’s board of directors, according to the transcript of a call with bondholders last month. During the call, DeLuca asked officials about whether donations could be used to replenish the reserve fund that’s been used to make interest payments to bondholders.
‘Scare Congress’
Investors are prohibited by federal law from using the site’s property as collateral, leaving them without the recourse they would usually have in a default. That explains why bondholders have floated potential saviors like Stewart, who famously pleaded with Congress to fund health-care benefits for police officers and firefighters who responded to the September 11 terrorist attacks.
Joel Farnsworth, an independent financial adviser for Wedbush Securities, said during the bondholder call that fund officials could “scare Congress” into saving it. He also told them that a billionaire could make “all your problems” go away. He suggested Irwin Jacobs, founder of Qualcomm Inc.
“There’s lots of folks that are very wealthy that love the police -- they should be able to get involved,” Farnsworth said in an interview.
Farnsworth said a “viral” moment -- possibly with the help of Stewart -- could also help increase awareness of the museum. The museum should also include some focus on other types of first-responders given that some people have an unfavorable view of cops, he said.
The museum has been trying to get more visitors to come in and pay the $21.95 ticket, which is a difficult sell just blocks from the free Smithsonian. As a way to boost attendance, it launched a crime-solving contest with a $25,000 prize for visitors.
DeLuca asked the fund officials to “walk through” why it was giving away that money. They said it was a way to get more media attention and reach its target of 105,000 visitors in 2019 -- much less than the initial estimate of 420,000 visitors when the fund sold bonds in 2016.
DeLuca said in an interview that ticket fees weren’t going to cut it. “They’re going to need some big bucks” from a company or donor, he said.
Federal Quirk
The call’s transcript hinted that some unnamed investors who submitted questions might be frustrated with the situation. One asked how the museum’s leaders were explaining to would-be donors how investors are being treated.
Another raised “beyond concerning” communication with bondholders. Lori Sharpe Day, then-interim CEO of the fund, rebuffed a request for monthly calls with investors, agreeing to do one every two months instead.
The fund asked the trustee for a forbearance agreement in January. Trustee Wilmington Trust said in a filing it wouldn’t make principal payments scheduled in July.
Marcia Ferranto, the new CEO of the fund, said it is not considering closing the museum and that it has a “robust” schedule this fall. “The Memorial Fund is open to considering all ideas which appropriately fit our mission and our business plan,” she said in an emailed statement. “At this time, we have not reached out to comedian Jon Stewart.”
Bondholders’ options are limited. The museum was placed on federal land as part of a 2000 law that created the tourist site, which is located across from a longstanding memorial for police officers. Because of that, bondholders can’t seek a lien on the real property, said Miyoko Sato, a lawyer hired by Wilmington Trust, during the call.
Sato, who did not respond to requests for comment, said institutional bondholders are interested in seeing if the museum can turn itself around. There hasn’t been an assessment of its liquidation value, she said.
“If that comes to be at some point, we certainly will discuss it with all bondholders,” she said.
To contact the reporter on this story: Amanda Albright in New York at aalbright4@bloomberg.net
To contact the editors responsible for this story: Elizabeth Campbell at ecampbell14@bloomberg.net, Michael B. Marois, William Selway
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