The Philadelphia Orchestra Association is seeking a loan to help fund operations through the end of its bankruptcy case, and has applied to U.S. Bankruptcy Court for permission to assume $3.1 million in debt to pay operating costs, including salaries and vendor bills.
"Unless these expenses are paid, the debtor will be forced to cease operations, which would likely result in irreparable harm to its organization and jeopardize the debtor's ability to reorganize and maximize value for all interested parties," the association stated in papers filed Wednesday.
Such financing - called debtor-in-possession financing - is standard in bankruptcy, and the fact that the association has not had to apply for a loan until five months into the case speaks to the paucity of unpaid bills before and after the orchestra's April 16 Chapter 11 petition.
"Since the commencement of these cases, the debtor has successfully managed cash so as to delay the need for the debtor to access funds from a [debtor-in-possession] facility," the filing said. "The debtor filed its bankruptcy case to streamline operations that have become uneconomical and to restructure leases, contracts, and other operational agreements."
Orchestra bankruptcy attorney Lawrence G. McMichael echoed that: "On the date of the petition, there was not a large number of payables. Our problem is not unpaid bills. Our problem is pension and lease obligations."
But the action - which requires the approval of Bankruptcy Judge Eric L. Frank - will add to the orchestra's growing bankruptcy tab.
The proposed loan, from Sun Federal Credit Union, comes with an interest rate of 7.25 percent (9.25 percent if the association defaults or moves to Chapter 7 bankruptcy), and closing costs of $15,500. The loan would likely be repaid in several months.
As collateral, the association would put up its musical instruments and library of scores and instrumental parts, property, and other tangible and intangible possessions.