Ar bit rage Fi nan cing for

No npr ofit Ca pit al

Pr ojects:
The Ca se Stu dy o f th e
Gu th rie Thea ter
Jay Kiedrowski,
Treasurer, Guthrie Theater
Senior Fellow, HHH Institute, U of MN
April 2, 2005
Gu thrie Th ea ter
Ba ck grou nd
 First classical regional theater in U.S.
 Established in 1963 by Tyrone Guthrie
 Artistic Director, Joe Dowling, began in
1996
 His new vision for Guthrie Theater:
“National Theater Center”
 Need for new three-stage theater
 Original Cost $75 million 2
New Gu thrie Th ea ter
 Guthrie Theater hired world class
architect, Jean Nouvel, in 2001
 Project grew to $125 million by 2003
 Funding for the project was dependent
on $ 40 million of State Bonding, $75
million of private contributions, $10
million from unidentified sources
 Project needed to break ground by fall of
2003 3
New Gu thrie Th ea ter

4
Realit y
 MN Legislature provided only $25 million
of bonding in spring 2003.
 Fundraising goal needed to be increased
to $85 million in May 2003
 An additional $15 million was needed to
complete the financing
 Financing package needed to be in place
to break ground October 1, 2003 or cost
of project would increase substantially
5
 Creat iv e Fin an cin g
 Finance and Investment Committees of
Guthrie met with Public Finance Bankers
 Use of Arbitrage Financing Explored
 Tax-exempt bonds could be sold to finance
construction (Expected cost 2.5%)
 Private contributions could go into
endowment until project was completed
(Expected return of 6.5%)
 Back-up was to carry the deficit in debt
6
Requ iremen ts for
Arbi tra ge
 Guthrie Board approval
 City of Minneapolis approval
 MN Commissioner of Finance approval
 Letter of credit from local banks
 Detailed schedule of private
contributions
 Definitions of collateral and artistic
control 7
Endo wmen t
In vestmen t Po licy C han ges
OLD NEW
 Large Equity 30%  Large Equity 20%
 Small Equity 15%  Small Equity 10%
 Inter. Equity 20%  Inter. Equity 20%
 Fixed Income 25%  Fixed Income 5%
 Hedge Funds 10%  TIPS 15%
 Hedge Funds 30%

8
200 3 O utcome
 $85 million in AAA tax-exempt 501(c)(3) variable
rate 20-year demand revenue bonds were sold
by the City of Minneapolis (with $65 million to be
retired in 60 months)
 Guthrie pledged general assets for letter of
credit on bonds, and accepted possibility of debt
 Issues of collateral and artistic control resolved
 Private contributions were put in Guthrie
Endowment as received
 Project broke ground on time 9
 Up date 2 005
 Project is on time and within budget
 Opening scheduled for late-spring 2006
 $85 million in bonds still outstanding at
average cost of 2.5%
 Net endowment return has been $4 million
in excess of normal balance returns and
borrowing costs for first 16 months
 $2 million of excess return “to be taken off
the table” if 2005 goes negative 10
New Gu thrie Th ea ter

11
 Lesso ns L earn ed
 All stakeholders need to understand the
risks vs. rewards
 Endowment investment policies should
be changed to protect down-side
 Energetic collaborative effort required of
all stakeholders to put the arbitrage in
place
 Bonding/Endowment arbitrage can be a
useful tool, but requires ongoing
monitoring and reasonable markets 12