Municipal bond investors have to assess an unusual risk as part of a $113 million bond offering next week: The historic strikes that are paralyzing business for much of Hollywood.
The seller of the debt, a group affiliated with the Academy of Motion Picture Arts and Sciences, is familiar to muni-market participants because
However, this offering, which will refinance old, higher interest-rate debt, comes against a troubled backdrop for the industry. The Writers Guild of America went on strike May 2, seeking higher pay and other changes amid the rise of streaming TV and artificial intelligence. The strike, coupled with one by screen actors that began in July, has largely halted production of new films and scripted TV shows.
That poses a risk for next year's Oscars ceremony, scheduled for March. The show — one of the most-watched non-sports event in the US — generates significant revenue that helps pay off the bonds.
"Both the writers' and actors' strikes are active and, if not resolved a few months in advance of the 2024 Oscars award show, the strikes could negatively impact the show or result in the postponement or cancellation of the 2024 Oscars award show," the bond documents say. "In addition, the strikes could result in fewer films being available for Oscar consideration either at the 2024 Oscar award show or at future Oscar award shows."
The 2023 ceremony drew 19.9 million viewers in the US and 17.5 million viewers abroad, according to the bond documents. It has only been postponed four times since its inception in 1929: after a flood in 1938, to observe Martin Luther King Jr.'s funeral, after the attempted assassination of President Ronald Reagan, and in 2021 because of the pandemic, according to bond documents.
The bonds are backed by revenue from the so-called obligated group that is borrowing the money for the museum. It's composed of five related nonprofits: the Academy of Motion Picture Arts and Sciences, the Academy Museum Foundation, the Academy Foundation, the Vine Street Archive Foundation, and the Archival Foundation. The group has about $400 million of outstanding debt, according to data compiled by Bloomberg.
The group gets revenue from sources including the awards ceremony, the museum's operations, donations and investment income. A decrease in revenue generated by the awards show could have a material impact on the group's ability to make bond payments, the bond documents note.
The Oscars ceremony is especially crucial because of the academy's contracts with broadcasters: The Academy Awards and related activities generated $137 million of unrestricted revenue in fiscal 2022, bond documents say. Revenue from the museum - such as through ticket sales - came to about $23 million.
"The biggest concern is if the strike goes on for too long and the Oscars broadcast gets canceled," said Dan Solender, head of municipals at Lord, Abbett & Co. He said he doesn't see the strikes as posing a longer-term risk at this point for the debt.
The bonds have an Aa2 investment-grade credit rating from Moody's Investors Service, with a stable outlook, the ratings company said this month.
The museum describes itself as the largest in the U.S. devoted to the arts, sciences, history and social impact of movies and film artists. It drew 700,000 people in its first 12 months.
Deep Pockets
Philanthropic donations also support the payments on the municipal bonds. Walt Disney Co. Chief Executive Officer Bob Iger, actor Tom Hanks and actress Annette Bening have spearheaded fundraising for the museum, raising about $388 million, the bond documents say.
The bonds will be sold by the California Infrastructure and Economic Development Bank, known as IBank, a state government-organized conduit bond issuer.
A spokesperson for IBank declined to comment, as did representatives for the Academy and for Wells Fargo & Co., the underwriter on the bond sale.
The museum foundation expects the bond sale to produce cost savings of approximately $1.1 million in annual debt-service payments,
