The Please Touch Museum in Philadelphia has filed for Chapter 11 bankruptcy protection two years after defaulting on nearly $60 million in bonds.
The children's museum announced on Sept. 11 that the filing in U.S. Bankruptcy Court in Philadelphia follows two years of trying to restructure nearly $60 million in bond debt. The museum has reached a settlement with the majority of its bondholders which will involve mounting a $10 million fundraising campaign that must be completed in March 2016 when the reorganization process can be finalized.
The museum issued $60 million in revenue bonds in 2006 through the Philadelphia Authority for Industrial Development to finance the renovation of its new home in Memorial Hall.
It defaulted on them in September 2013, even though it had the resources to make that debt service payment, saying at the time that it believed a restructuring was inevitable.
Sally Stetson, chair of the Please Touch Museum Board of Directors, issued a statement saying the filing puts the museum "on a path towards even greater success" and that the museum will remain open throughout the recovery period.
The settlement calls for bondholders to receive roughly $11 million under the terms of the consensual resolution, which is "substantially less" than the total amount owed. Museum officials noted that the $10 million to be raised will fund a portion of the settlement, restructuring fees, working capital through the proceedings and two years of contributed revenue that will support museum enhancements.
"We are simply entering into a process to resolve the institution's debt and position ourselves for lasting growth and sustainability," said Stetson. "When the process is complete, the Museum will be on stable financial ground, have a strong foundation for the future and offer expanded programming."
The bond debt was attributed to "a perfect storm of financial issues" that included the recession of 2008 leading to a shortfall of millions of dollars in fundraising related to its move to historic Memorial Hall, which opened in 1876, The building that previously housed Please Touch Museum also had to be sold for half its estimated value leading to a loss of several more millions.
"The plan was to have a major capital campaign to pay for the renovations and pay back the bondholders," said Lawrence G. McMichael, chairman of Dilworth Paxson, the Philadelphia-based law firm representing the museum. "The timing was very bad."
McMichael said the City of Philadelphia has been very supportive of the museum, but he is hopeful a new lease can be arranged that will reduce maintenance requirements. The city leases Memorial Hall to the Please Touch Museum for $1 a year.
"The past two years have been challenging," said Lynn McMaster, president and CEO of Please Touch Museum. "But we are all relieved to be heading towards a resolution of our financial situation."
