Philadelphia Orchestra Bankruptcy Filing

“The Philadelphia Orchestra is not insolvent and it is nowhere near insolvent. According to its IRS filing, it ended Fiscal 2009 with an endowment of over $129,000,000 (down from $143,580,000 the year before) and this sum is more than three times its liabilities as of the filing date of the Chapter 11 proceeding. To the extent that there is a genuine problem it is cash flow. A cash flow crunch, and a nasty desire to stick it to the musicians who make the music which is the alpha and omega of the orchestra’s reason for being is what’s motivating this bankruptcy filing. (The Orchestra Association’s most recent audited financial statement is found here.)

The 700 pound gorilla in the room is the Orchestra Association’s obligation to the musician’s pension fund. This was an obligation it negotiated and now wishes to go back on. In common parlance (and at the risk of insulting Bryn Terfel) it wishes to welch on its debt. The orchestra argues “this is worse than it appears.” And indeed it is, but not in the way the orchestra claims.

Management no longer wishes to have any part of the agreement it solemnly entered into. The pension obligation is roughly $3,000,000 per year, and if it withdraws from its obligation it is contractually committed to make a one-time $25,000,000 payment to the pension fund. The Orchestra Association argues on the one hand that by welching on this and other debts it can save $40,000,000 over five years. This is fascinating in that management’s last audited financial statement estimated pension costs over the next five years at $16,340,000. It is little wonder that the musicians’ union does not believe the Philadelphia Orchestra Association’s numbers since they are simply made up.

It is known that the agreement between the Philadelphia Orchestra Association and the Philly Pops has expired, but the agreement between Peter Nero (long-time leader of the Philly Pops) and the orchestra has not. Nero brought an arbitration proceeding to compel the Orchestra Association to schedule and announce a 2011-2012 season. The orchestra lost that arbitration and it now seeks to win before the Bankruptcy Court what it lost in the arbitration. Whether the Bankruptcy Judge will allow it remains to be seen, but I would not bet the farm on the proposition.

It has been reported that the Orchestra Association claims that it owes the Kimmel Center just under a quarter of a million dollars; the Kimmel Center claims that the amount is actually over $1,200,000 but that it has forborne from demanding $650,000 of what it is owed. You would think that the brightest minds in the business community could agree on something as basic as ‘Just how much do we owe you?’”

Here is a link:

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