Bonds to rescue L.A. Opera offer a nice return, but you can't invest
Given Tuesday’s news that Los Angeles County will issue $14 million in bonds as a loan to the cash-starved Los Angeles Opera, some L.A. Opera fans might be wondering whether this could be an opportunity to do well by doing good.
Invest in a bond that helps tide the opera over while it solidifies its finances and pays down about $20 million in debt, and bank some attractive interest as your reward. At an interest rate of almost 5%, that’s a heck of a lot better than you can get from a certificate of deposit or a U.S. Treasury bond.
If that sounds too good to be true, well, it is. The bonds are a “private placement,” and the deal will work like this: On Friday, the Los Angeles County Public Works Financing Authority will issue the bonds. Banc of America Leasing & Capital LLC, will buy them all for $14 million, and the county will pass the bank’s cash along to the opera on the same day.
Twice a year for the bonds’ three-year term, the opera will fork over interest at a pre-arranged rate of 4.7%, and the county will pass it along to Banc of America. The interest will total a tad less than $2 million. The principal will be paid in a single lump sum at the beginning of 2013.
But he was mistaken: As county chief executive William T Fujioka noted later in the meeting, the bank will pocket all of the interest. The county is acting as an unpaid middleman, needed for the deal because it has the legal authority to issue bonds in the public’s interest. The county would be on the hook if the opera defaults, Doug Baron, director of public finance for the county Treasurer/Tax Collector’s office, said Wednesday.
But Baron and other county officials consider the likelihood of that to be negligible, because 23 members of the opera’s board already have pledged $30 million that would retire the principal and interest nearly twice over.
The need for a county-engineered loan arose because those pledges will come in over the next 2 1/2 years, and the opera needs cash now — starting with a payment on a line of credit from Bank of the West that's due Dec. 15.
Loaning the opera the money to save it from going broke while waiting for its golden eggs “makes sense and does not put the county in jeopardy whatsoever,” Fujioka told the supervisors — apparently banking on those wealthy opera donors holding on to their fortunes long enough to make good on their pledges.
Stephen Rountree, the Music Center president who since November 2008 has pulled double-duty as L.A. Opera's top business executive, has said that new and ambitious productions, including $20 million in upfront costs for a massive, $32-million staging of Richard Wagner’s “Ring” cycle, contributed to the company falling into debt. Three of the four parts of “Der Ring des Nibelungen” have been staged to date, but the undertaking will culminate May 29-June 26, 2010, when operagoers can see all four parts over the course of eight days — an event expected to draw “Ring” fans, the Deadheads of the operatic world, from across the globe.
According to a transcript of Tuesday's meeting, Rountree told the supervisors that the company expects to break even on the "Ring." By the end of this month, he said, L.A. Opera will have raised $20 million in donations for the production that are separate from the $30 million in pledges to get the company out of debt and stabilize its finances. He estimated that box-office receipts for the “Ring” will total $12 million to $13 million.
As for the ballyhooed "Ring" Festival, in which more than 100 arts organizations in the region are taking part by offering programming of their own that’s related to Wagner and his masterwork — L.A. Opera may be providing the excuse for doing it, but Rountree told the supervisors it’s only going to spend about $150,000.
Mike Antonovich, the dissenter in the Board of Supervisors' 4-1 vote to approve the loan, objected to being rushed to decide on what he considers a precedent-setting policy, “negotiated basically behind closed doors” between the opera and the county chief executive’s office, then sprung on the supervisors and the public as a deadline neared for the opera to pay its bank debt.
“It’s opening up a Pandora’s box,” Antonovich said. “It sets a bad policy for the other nonprofits that have some very meaningful programs that are being eliminated because they don’t have the ability to get the necessary loans to continue to operate through these tough economic times.”
-- Mike Boehm
Photos: Scene from L.A. Opera's staging of "Das Rheingold," from Wagner's "Ring" cycle; Zev Yaroslavsky (middle); Mike Antonovich (bottom). Credits: Lawrence K. Ho / Los Angeles Times ("Das Rheingold"); Al Seib / Los Angeles Times (Yaroslavsky); Robert Gauthier / Los Angeles Times (Antonovich)