Please Touch bondholders threaten to sell its assets

Will Capt. Noah and the old John Wanamaker toy department monorail be sold off to Please Touch Museum creditors?

Even as negotiations continue between the museum and owners of its bond debt, the principal owners of that debt say they will begin selling some of the museum's assets, including its exhibits.

The move on collateral is detailed in a June 18 letter from a lawyer for the trustee of the debt, U.S. Bank National Association, representing the principal holders of about $60 million in debt the Please Touch is attempting to renegotiate.

The museum's debt stems from its 2008 move into, and renovation of, Fairmount Park's Memorial Hall, a massive and neglected artifact of the 1876 Centennial Exposition. The museum tried to raise $88 million for the project, but failed. By 2011, as its debt payments increased and bond rating dropped, it had developed a plan to raise $30 million to finance debt payments into the future. That plan did not come to fruition.

Now, the trustee intends to sell furnishings, equipment, and exhibits, as well as the museum's accounts and gross receipts, revenues, payments, income, and other funds received by it or on its behalf, wrote lawyer Warren S. Bloom.

Not so fast, the museum says. The list of items is much larger than "the actual collateral upon which the trustee has a lien," wrote museum lawyer Gretchen Santamour in a June 26 response. The trustee has no right to these assets, Santamour wrote, and any effort to pursue their sale "would result in damages to the museum for which the trustee would be liable."

Both sides agree that some items on loan are not at risk: the restored 1924 Dentzel Carousel owned by the Pennsylvania Historical and Museum Commission; the scale model of the 1876 Centennial Exhibition; eight sculptures; 20 carved stone benches; and specific furniture items.

It is not clear how much money a miniature SEPTA bus or a model of the Statue of Liberty's arm wrought in recycled plastic toys could fetch, or the exact value of various other assets.

The Please Touch houses substantial collections that represent what it meant to be a child in the Philadelphia region in years past. Included are the Lit Bros. Enchanted Colonial Village; the monorail that carried children around the toy department at Wanamakers; and sets and props from the Captain Noah and His Magical Ark television show.

It also is unclear whether the sale of exhibits would hinder the museum's operation.

Lynn McMaster, the museum's president and CEO, would not comment on the dueling positions of the museum and the holders of bond debt.

"We will not answer questions on anything other than the fact that there is a [proposed] settlement out there and we are awaiting a response," said Santamour, a bankruptcy lawyer with Stradly Ronon Stevens & Young. On June 26 she wrote to Bloom, "If we are able to reach a settlement, our clients can avoid a dispute over the action you propose to take in the June 18 letter, and all parties will be better served."

The stated intention to conduct a private sale of assets came two days before the museum tendered its proposed resolution to owners of the bond debt. The June 20 offer proposes to make annual payments through 2036 that are linked to the museum's performance, rather than to the escalating payment plan outlined under the terms of the original 2006 bond agreement.

Payments would be equal to one-third of any adjusted change in the museum's net assets or total museum revenue as reflected on its annual financial statement, whichever is less. The proposed deal also calls for bondholders to be paid the balances in certain accounts that were set aside for debt service.

The deal would require the approval of bondholders representing 67 percent of the principal amount of the outstanding bonds. Messages left for Bloom, the lawyer representing the trustee, were not returned.

A week ago, Standard & Poor's lowered its long-term rating of Please Touch bonds from CC to D after events culminated in the trustee's demanding the immediate payment of principal of all bonds outstanding. "We don't expect them to be able to pay it because of a lack of resources," S&P analyst Nick N. Waugh said Monday.

Last September the museum decided to forgo a $2 million debt payment, putting it in default. It said it would renegotiate debt with bondholders and, failing a new deal, might file for Chapter 11.

McMaster said then that she expected a deal by the end of 2013. Last week she said: "There have been some delays, mostly with some of the work we had to do to provide documentation, and conversations and meetings. This has taken longer than we anticipated."

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