Tom Kozlik, municipal credit analyst at Janney Capital Markets, expects Standard & Poor's to make good on its 13-month-old warning that it may cut the credit rating of the Philadelphia Please Touch Children’s Museum below its current BBB- "with a Negative outlook" to junk-bond status.

S&P's latest report, dated April 10, credits the museum with "strong attendance" - 571,000  last year, up "slightly" from 2010; and with raising a "growing museum fund," now $14.3 million, to pay down the debt the museum incurred when it moved to Fairmount Park after its previous fundraising drive "stalled" in the recession.

But S&P still lists a "negative outlook" for the museum; it will have to raise more money or improve its margins before its investment-grade credit rating is safe.

The museum borrowed to help finance its move from Center City near the Franklin Institute to Fairmount Park's Centennial Hall in West Philly, and had hoped to pay down its debt through increased fundraising. But like many nonprofits, it found both public and private funding sources dried up during the recession that started in 2008.

Analyst Kozlik warned last year the bonds should not be considered investment grade, given the nonprofit's tight margins. Kozlik wrote in a report to clients this week, after reviewing the museum's audited financials, released March 30, for the year ended Sept. 30: "The operating shortfall trend continued in FY11 and the PTM still has a strong reliance on fundraising to fund future debt service payment."

There's no "short-term danger" of default, there's cash on hand to pay bondholders a year in advance. Still, "grants and contributions were down to $1.4 million in FY11, from $2.7 mill (FY10), $5 million (FY09), and $22 million in (FY08)." The museum can no longer count on government grants due to budget cuts. It did sell its old Center City headquarters, for around $3 million, for use as an art gallery. The proceeds will go to bondholders.