The California Infrastructure and Economic Development Bank recently sold revenue bonds worth $58 million to help build the Walt Disney Family Museum in San Francisco, at the Presidio, a former Army base.
JP Morgan Securities Inc. was the underwriter of the tax-exempt bonds, which will yield 2.84 percent in 2011 to 5.35 percent in 2028. Term bonds will bring 5.42 percent in 2033, and increase to 5.50 percent by 2038.
All this is unusual because the ratings companies didn't offer up a reason or peace of mind for investors, as they weren't part of the process; neither are the bonds insured.
So why are people investing in the project, when the yield for the bonds in contrast to other bonds isn't particulary attractive either; at least through 2011, as 20-year municipal bonds pay around 5 percent at this time?
The major reason is the museum is being built by the Walt Disney Family Foundation, headed by Disney's daughter Diane Miller. There is also the Walt and Lilly Disney Foundation which has $262 million in resoureces at its disposal, and has committed close to $60 million for the construction of the rest of the museum. The Foundation is also guaranteeing repayment of debt, something investors evidently consider as good as a AAA rating.
One other value the Foundation is including, is they'll be making yearly donation in order to pay for operations, putting less pressure on it to succeed financially over the short term.
All of this means they're considering the commitment and desire of Walt Disney's family to keep Walt and his accomplishments in the public eye as a key element in making the bonds safe in their eyes.
Revenue from the museum is expected to come int at about $3.9 million annually, which would cover about 40 percent of the debt and expenses connected to the project.
With the foundation covering the rest of the bills, it is a risk in that it assumes the Disney family will continue to cover the costs, there won't be any damaging earthquakes, the licensing content deal with Disney continues and the government-owned Presidio remains available to house the museum, which has been given the responsibility by the government to pay for itself by 2013.
Keeping all that in mind, it even underscores the power and trust in the Disney name, even though there is no direct connection to the Walt Disney Co. (NYSE: DIS) other than shares owned in the company by the foundation and Disney family.
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