Farnoosh Torabi
Nonprofit cultural institutions are increasingly issuing bonds as an additional revenue-raising vehicle. The number of organizations on Standard & Poor's credit ratings list in this category alone has doubled since 2000 to about 30 organizations.
For instance, the Please Touch Museum in Philadelphia issued $60 million in bonds last October to renovate and restore its 130-year-old Memorial Hall. The bonds helped finance the project quickly. "All large-scale projects have a mismatch in when you need to spend the money [and] when you get the money," says Concetta Anne Bencivenga, CFO of the Please Touch Museum. "We need to pay our contractor now. [A bond issuance] made the most economic sense." But do bonds issued by these institutions make financial sense for individual investors?Risks and Rewards
The good news: These bonds are tax-exempt and bring diversity to your portfolio. Also, they usually offer higher yields than municipal bonds. That said, nonprofit bonds tend to be riskier than munis because if a museum or other cultural institution enters financial hardship, it's more difficult for it to bounce back than for a municipality to do so. Doubling admission to generate more revenue is not as easy as, well, raising taxes, says Josh Stern, a director at S&P's ratings group. Eric Wild, a managing director at Morgan Stanley (MS Quote - Cramer on MS - Stock Picks) who works in this sector as an underwriter, agrees. "Tax-backed obligations are the most secure because of the ability to continue raising revenue," he says, adding that despite the risks, defaults by museums and the like are still pretty rare.Where to Shop
Investors can get a heads-up on bond sales by contacting the various public finance commissions in their area. These offer seals of approval on bonds and hold public hearings to discuss potential sales.
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