Bonds

In default, National Law Enforcement Museum looks to Congress for help

Washington, D.C.-based National Law Enforcement Officers Museum is turning to Congress for help in covering bond payments.

The museum, which has struggled since it opened in late 2018, is propping up this year’s budget with a donation from Clint Eastwood, while it lobbies for passage of a House Republican bill that would send it federal dollars for the next seven years.

Museum officials “continue to meet regularly with staffers on the Hill to solicit support,” said National Law Enforcement Officers Memorial Fund, Inc. CEO William Alexander in a Feb. 15 report to bondholders posted on EMMA. Per bondholder request, the fund, which operates the museum, provides quarterly updates on the project.

The National Law Enforcement Officers Memorial is in Washington, D.C., at Judiciary Square, adjacent to the National Law Enforcement Museum.

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H.R. 3381 would establish a Department of Justice program that would allocate $6 million annual grants for seven years to support the fund. The $6 million grants could not be used for debt service, Alexander said. But “it could be used to develop programs which would provide additional outside funding opportunities. We continue to believe this (potential) federal funding offers the best opportunity to begin to pay bond debt.”

The push for the bill marks the latest effort by a museum that has struggled to cover debt payments almost from the time it opened its doors.

The museum in January 2016 came to market with $103 million of unrated revenue bonds sold through the District of Columbia’s revenue bond program. Congress authorized construction of the museum, which was built on federal land just blocks from the Mall and next to the existing National Law Enforcement Officers Memorial. The bulk of the debt is backed by a pledge of revenues from NLEOMF operations, including ticket sales and unrestricted donations.

The borrowing consisted of three tranches: $48.13 million of Series A bonds consisted of intermediate- and long-term maturities; $30 million of Series B bonds consisted of two term bonds due in 2025 and 2027; and $25 million of subordinate Series C bonds due in 2049.

The deal was restricted to sophisticated investors and offered yields of 8% on the 2049 senior bonds and 10% on the junior bonds at a time when yields on BBB-rated 30 year debt was 3.62%.

Within three months of its October 2016 grand opening, where Clint Eastwood cut the ribbon, the museum defaulted on the subordinate bonds. It’s remained in default on the junior bonds ever since, most recently missing a Jan. 1 payment. During at least years 2021 and 2022, the museum also missed interest payments on the two senior bonds, according to 2022 audited financials that posted on October 2023. The report also warned of “substantial doubt about the organization’s ability to continue as a going concern.”

Principal payments on Series A bonds do not begin until 2031.

A $550,000 chunk of A bonds with a 7.75% coupon due in 2049 sold for 4 cents on Jan. 30, according to EMMA. Most recently the bonds traded for under a penny, at $0.66.

NLEOMF officials have said that increasing visitors and donations are key to solidifying its finances. But relatively high ticket prices — $22 a head — means tough competition from the Smithsonian and other world-class and free museums nearby on the Mall, said Gilbert Southwell, senior credit analyst at Allspring Global Investments.

The deal seemed risky from the start, said Southwell. “We looked at it but didn’t feel comfortable buying it,” he said. “The competition is huge … given that Washington, D.C. has a lot of other magnificent projects and collections that are either free or not very expensive.”

For credit analysts it’s often “hard to gage how well a specialty museum like that will do,” he added. “We felt that we didn’t have the demand information available to make an investment of our clients’ funds.”

The most recent financials, posted Feb. 15, said the 2024 budget relies on the remainder of Clint Eastwood’s gift of $250,000. Eastwood, who served as honorary chair of the fund and the museum has recorded videos encouraging donations and last May announced he would match all donations made for a week period.

In his CEO note, Alexander noted that the organization ended calendar year 2023 with a $500,000 shortfall, an improvement from the $1 million projected shortfall due to budget cuts and better-than-expected revenue from direct mail.

Meanwhile, the center is hoping that Congress will step in. “While we continue to gain momentum, this process will extend well into 2024 and perhaps into 2025 before the outcome of our efforts is known,” he said.

Introduced in May 2023 by Rep. Troy Nehls, R-Texas, the legislation has 135 co-sponsors and has been referred to the House Committee on the Judiciary.

Noting that the museum is the “only law enforcement campus in the United States,” the bill says it’s “in the national interest to ensure that the unique education and outreach programs be maintained and enhanced.”

The fund did not respond to a request for comment.

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