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Bank's loan guarantee clause may nix museum

City and art museum officials say no to JPMorgan Chase's demand that the city back up a construction loan and to other new requirements.

By BILL VARIAN
Published February 26, 2005

TAMPA - A bank's requirement that city government back a loan to build a new downtown art museum has jeopardized the entire project.

A top official with the Tampa Museum of Art board of trustees said she is "appalled" by that and other last-minute requirements from JPMorgan Chase Bank. Cornelia Corbett, chairwoman of the board, said as much in a letter to the bank Friday on behalf of the museum's executive committee. In it they demand that the language requiring city financial backing be stricken from its offer sheet.

"It was terribly disappointing that this would be thrown in at the 11th hour without any warning," Corbett said Friday. "It's never once been discussed in the six months we have been negotiating with them. To find it in there was amazing."

Corbett said the financial requirement is one more hurdle for a project that has had plenty of them. Museum backers have been grappling with a series of deadlines for fundraising and financing goals that must be met before Tampa Mayor Pam Iorio and the city will support the project. The builder has agreed to lock in the current $53.9-million construction price tag only until April 11.

Among hurdles the museum has faced, however, the city's top finance chief said this new one is big. Asked if she thought the museum could overcome it, city revenue and finance director Bonnie Wise said, "I don't know.

"This particular provision needs to be removed from the commitment letter, as do other provisions," Wise said. "Other terms need to be negotiated and analyzed."

Wise expressed concern that time is running out.

The city has given the museum board until March 24 to secure a formal commitment from a lender and to provide satisfactory assurance that taxpayers won't be on the hook for the building any more than has already been pledged.

The city has promised $30-million toward construction of the building and $2-million annually to run it, and Iorio has made it clear she wants to make sure taxpayers won't be tapped for more.

City officials say March 24 is the last date they can accept the bank's commitment letter and get it approved before the April 11 deadline set by the museum's prospective contractor, Beck.

Iorio has already granted deadline extensions to the museum board for getting a financial commitment from a bank. That finally came Thursday.

It contained what city officials have long said would be a deal breaker: a provision that would require that Tampa taxpayers pick up the tab if the museum can't make its annual debt payments.

The museum has said it can pay off the construction costs using a combination the money the city has already agreed to pay and some $43-million in private pledges. But the bank is seeking its own assurances.

To build the new museum on Ashley Street, the city would sell bonds on the museum's behalf through Chase. Museum officials would be required to set up a reserve pool of money equal to a year of debt payments to be used if it falls behind on its bill.

Under terms sought by Chase in the commitment letter, the city of Tampa would ultimately be responsible for replenishing the fund if the museum can't make its payments.

"Since our very first discussions with JPMorgan Chase, we made it very clear that in no circumstance would it be acceptable that the city be required to guarantee any portion of the loan," Corbett wrote Friday in a letter to Russell Nolan, a senior vice president with Chase in Monroe, La.

The letter refers to earlier correspondence from the bank that made no mention of city guarantees, as well as to several other provisions that the museum board finds unacceptable.

"We are appalled that, at this late date, these new requirements are included. ... We are now at a point where the bank's position has jeopardized the entire museum project," Corbett wrote.

Corbett's letter said other unacceptable conditions include a doubling of another required reserve fund, restrictions on money that can be used to invest in major exhibits and an allusion to as-yet undisclosed partners in the bond sale.

Corbett's letter tells the bank the museum board expects a reply by the close of business Monday.

An attempt to reach Nolan late Friday was unsuccessful. He had told the St. Petersburg Times Thursday he would not comment on the matter, citing the bank's policy of client confidentiality.

City officials have said they have other concerns beyond guaranteeing the loan. Wise noted the commitment letter requires the city to bless the museum's financial analysis.

Another provision requires the museum to secure more guaranteed funding, but not until after construction begins. The commitment letter also holds the city liable for costs of any unexpected environmental issues that emerge.

[Last modified February 26, 2005, 01:14:15]