Please Touch Museum files for Chapter 11
The Please Touch Museum, which borrowed more money than it could pay back to renovate a new home in Fairmount Park's Memorial Hall, has filed for bankruptcy.
The Please Touch Museum, which borrowed more money than it could pay back to renovate a new home in Fairmount Park's Memorial Hall, has filed for bankruptcy.
The children's museum filed Friday for Chapter 11 reorganization in U.S. Bankruptcy Court in Philadelphia. The action has two main objectives: to shed the majority of the $60 million it owes holders of its debt, and to negotiate a deal whereby the museum turns over maintenance and repairs of Memorial Hall to the city, which owns it.
The first Bankruptcy Court hearing on the matter is expected next week. The museum remains open.
The action comes on the heels of an agreement reached Thursday night with an ad hoc committee representing bondholders with about half of the debt, said Dilworth, Paxson bankruptcy lawyer Lawrence G. McMichael (who also handled the Philadelphia Orchestra Association bankruptcy).
Chapter 11, McMichael says, is a cudgel used to get an agreement from all of the bondholders.
"Let's say there are 22 holders of the bonds, and we get 21 of them to agree to the deal. What happens with holdouts is they want a higher price, and then things spiral out of control," he said. "Typically, when you have debt held by more than two parties, it's difficult to get buy-in from the people who hold most of it, and you use Chapter 11 to resolve the rest of it."
He said that, so far, he knew of no opposition to the plan, which proposes to pay back bondholders about $11.5 million ($2.5 million of which is already paid) of the $60 million debt.
To cover the tab, the museum is launching a $10 million fund-raising rescue plan. In addition to paying off the debt, the museum would use the money to pay professional fees associated with the bankruptcy and to make some exhibit upgrades.
Museum president and CEO Lynn McMaster declined to say whether any of the $10 million had already been raised.
"I'm not going to get into details of the fund-raising at this point," she said. "We are pretty confident that our donor base and community are going to be behind us on this."
McMaster has been evasive in recent months on the question of whether the museum intended to file for bankruptcy, but documents filed show that the board approved the measure June 11 and that board chair Sally Stetson signed the resolution Aug. 12.
On the question of the city's taking over maintenance costs of the hall, built in 1876, McMichael said, "I don't expect to have a firefight with the city. We probably need to adjust the agreement to make it easier for Please Touch to stay in Memorial Hall."
McMaster lays out some of that burden in court filings: "The lease is not economical . . . because the Museum must maintain a 150-year-old building owned by the City of Philadelphia. As well, the Museum is responsible for property insurance. Further, the utility expenses associated with heating and cooling the Memorial Hall location are high as a result of the age and condition of the property."
The city paid about $1 million for the museum to repair its leaky dome this summer.
The museum, which moved from its longtime spot behind the Franklin Institute and reopened in Memorial Hall in 2008, laid off three staff members about two weeks ago. In recent months, others have voluntarily left the staff of 40 to 50 full-timers. "The Museum has worked to aggressively reduce its operating expenses over the past two years," McMaster stated in a bankruptcy filing.
Still, pressures have mounted. "As a result of declining operating revenues (because of the inability to reinvest in exhibits, marketing, etc.), declining donations (because of the inability to repay the Bond debt), and huge maintenance expenses arising from the age of the building and lease requirements," the museum defaulted on the bonds in 2014, McMaster says in the filing.
One objective of the bankruptcy is to send a message that the museum is intent on turning itself around, said McMichael. "When the donor community in Philadelphia, both large donors like foundations and even smaller ones, think you are under water and cannot handle debt, they become reluctant to give any more," he said. "Part of this is to let the community know we have this under control and it will be resolved, and I am hopeful that the Philadelphia community will open up their checkbooks."
McMichael said that he expected to file a reorganization plan within a month or two and that the museum could be out of bankruptcy by year's end.
One bondholder, I. Barry Blaxberg, said he was resigned to taking a "haircut" on his investment, which he estimated at $25,000, and moving on. "I'll survive," he said. "I had already made the decision no more touchy-feely children's museums in cities that can't get their fiscal act together."
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