"We certainly intend for this to continue to be the great Philadelphia Orchestra," said president/CEO Allison B. Vulgamore. "Everybody is working hard to do that. Sustaining these kinds of deficits is part of that objective, as well - not turning this orchestra upside down, throwing out all that it represents in order to try to be deficit-free."
"We feel very good about how we've come out of this," orchestra chairman Richard B. Worley said. "We still have an awful lot of work to do: rebuilding our audience, rebuilding excitement in the community about the Philadelphia Orchestra. ... We think we can persuade people to fund us now that our balance sheet is cleaned up, to see if we can pull it off. At the end of the day, we're doing everything we can, but we need the cooperation of Philadelphia. You can't run a major orchestra with 155,000 attendees [annually], with the level of contributions that we've had and the level of endowment we've had."
Orchestra leaders say the reorganization allows them to unload about $100 million in obligations - though that is a somewhat theoretical number because the largest portion of it is based on fluctuating pension shortfalls and liabilities (rather than actual debt) triggered through the orchestra's own act of withdrawing from the plans.
The burden of the larger chunk of those pension obligations, a claim of about $60 million, now falls to the Pension Benefit Guaranty Corp., the agency of the federal government that insures pensions. A PBGC spokesman on Wednesday declined to comment.
According to the orchestra, claims of various classes of creditors will be settled in different ways. Individual settlements were negotiated - sometimes with an adversarial tone - with the pension funds, Philly Pops, and the Kimmel Center. Others will receive 50 or 75 cents on the dollar, or even in some cases the full amount on their claims.
An estimated $5,493,000 will be distributed to satisfy claims under the terms of the plan, orchestra chief financial officer Mario Mestichelli said. More than $100 million in claims were filed, but that number includes about $90 million in the squishy pension-fund category, and so it is difficult to arrive at an accurate number for actual liabilities shed, orchestra lawyer Lawrence G. McMichael said. A realistic number, however, would be in the tens of millions of dollars, he said.
McMichael figures that the post-bankruptcy business plan will achieve a savings of about $6 million a year.
As important as the quantifiable savings, Worley said, was the elimination of risk. As market values plunged on pension funds, the amounts by which various pensions were underfunded - and the orchestra's financial obligation to prop them up - had grown.
Fees for lawyers and other consultants on the case are estimated to reach $8.8 million by July 31, Mestichelli said, plus perhaps an additional $700,000 or so for others who had spent only some portion of their professional time on the bankruptcy. Originally, the orchestra estimated professional fees at $2.9 million, a third of that.
From the start, Worley portrayed the bankruptcy as "a chance, an urgent chance, to save this great treasure."
Though expenses surely outpaced revenue in the years leading up to the orchestra's bankruptcy filing on April 16, 2011, this was not a case involving a large stack of unpaid bills and burdensome debt. Rather, it was a strategic move to obtain legal "hammers," in the words of McMichael, to achieve certain objectives:
Terminating a merger-in-process with the Philly Pops.
Negotiating rental savings with the landlord for the orchestra's chief venue, Verizon Hall.
Ending the orchestra's participation in the American Federation of Musicians and Employers' Pension Fund and moving musicians to a new defined-contribution plan.
Revamping the orchestra's contract with its musicians.
Though the bankruptcy process has consumed much more time and money than orchestra leaders and their lawyers expected - and it's not over yet - management achieved its goals. Of the last one, the association and the musicians, under judicial pressure, reached a new labor deal with deep cuts in pay. Several musicians have since made the decision to depart for jobs elsewhere.
The fifth goal was to leave bankruptcy with a "court-approved plan with all these elements that will attract donor support."
It's not yet clear exactly what the required level of support - or the response from philanthropists - will be. The orchestra had previously said that $160 million to $170 million would be needed to fund operations and build endowment during the next several years.
Now, Worley said, that number is probably higher.
Fund-raisers say there is a direct correlation between audience loyalty and philanthropy, which has made the plunge in orchestra attendance in the last two decades doubly potent. Worley points out that while Philadelphia Orchestra's paid attendance for its main subscription season fell between 1989 and 2009 from 255,000 to about 150,000, the numbers in cities such as Los Angeles, San Francisco, New York, Boston, and Chicago held steady during the same two decades.
"So what happened in Philadelphia is peculiar to Philadelphia," he said. "It's been a long time since Philadelphia has been excited about the orchestra."
Worley acknowledged that some orchestra patrons were against the bankruptcy filing, and said it had "deterred some donors and stimulated others."
With the move, the orchestra earned some ignominy as the first major U.S. orchestra to declare bankruptcy. Was it the right decision?
"Maybe a different leader would have been able to raise the money necessary to pursue a different path," Worley said. "I certainly tried. For a very long time, I held out the hope that we could raise the money to get through this outside of bankruptcy. I think we would have run out of money and gone dark. I thought it would have been irresponsible to just sit there and run out of money. We needed to take action."
Worley said he was looking forward to changing "the focus of my life from negotiations and battles to one of talking to people positively about the opportunities for this orchestra and trying to entice them to get on board and help us."
Of the future:
"We're going to have to become a focal point of cultural life and philanthropy in this community."
Contact Peter Dobrin at 215-854-5611 or pdobrin@phillynews.com. Read his blog at www.philly.com/artswatch.
