Art Institute of Chicago to issue $100 million in bonds to trim pension obligations

The Art Institute of Chicago is selling about $100 million of taxable and tax-exempt bonds partly to shore up unfunded pension obligations.

The institute plans to issue about $61 million of tax-exempt debt as soon as this week through the Illinois Finance Authority and $40 million of taxable bonds itself, according to offering documents. The securities mature from 2013 to 2040.

The sales will be led by Morgan Stanley (MS).

With interest rates in the $3.7 trillion municipal bond market near their lowest level since the 1960s, “the current low-yield environment presents a very favorable opportunity for the institute to refinance its debt and to re-examine its capital structure,” Erin Hogan, director of public affairs at the museum, said in an e-mail. “We are hoping for strong demand for the bonds.”

The Art Institute is rated A1 by Moody’s Investors Service, its fifth-highest grade, in part reflecting the museum’s pension and retirement liabilities. The benefits totaled $64.5 million in the 2012 fiscal year, according to a Moody’s report.

Proceeds of the museum’s taxable bond sale will be used “without limitation” to pay for “accelerating funding to the institute’s unfunded pension-benefit obligations,” Ms. Hogan said. The retirement plan had enough assets to meet about 65% of obligations to employees as of June 30, 2011, up from 53% the year before, Bloomberg data show.

The museum employed about 1,030 full-time and 573 part-time workers as of June 30, according to offering documents. All are non-union workers.

The Illinois Finance Authority, a so-called conduit issuer, last sold bonds on behalf of the art museum two years ago, Bloomberg data show. The debt maturing in 2040 was priced to yield 4.93% in May 2010.