Longer Philly Orchestra bankruptcy may be in the cards

In a legal maneuver signaling the potential for a longer and more expensive Philadelphia Orchestra Association bankruptcy process, the national musicians' pension fund, with which the orchestra is at odds, has filed a motion asking that money be put aside to settle a portion of what it is owed.

Under Wednesday's request, made to the U.S. Bankruptcy Court, $3.1 million from the association would be secured to cover past-due payments owed to the American Federation of Musicians and Employers' Pension Fund (AFM-EPF) from the time of the orchestra's bankruptcy last April until the date it withdrew from the plan in November.

The development comes after months of talks have failed to produce a settlement between the pension fund and the association over compensating the fund for the orchestra's withdrawal from the plan.

Leaders of the fund say that, absent a settlement, they are plotting further litigation and expect to oppose the association's yet-to-be-filed reorganization plan.

"I would say that's highly likely," said Ray Hair, president of the American Federation of Musicians and a trustee of the AFM-EPF. "We're prepared to take these matters as far up the legal ladder as we need to go. We are making sure that the POA understands that we're not going away. They're going to need to resolve it with us."

The association plans to file a response to Wednesday's motion.

"I think that the orchestra will vigorously oppose the motion, and I think that [the fund has] an administrative claim that is not supported by applicable law," said Lawrence G. McMichael, the association's chief bankruptcy lawyer. "That's why we have courts. The judge will hear evidence and will make a decision."

A court date has been set for April 30.

Without a negotiated settlement, the association risks the AFM-EPF's opposition to any reorganization plan it files, which could mean a longer and more expensive process before the orchestra can exit bankruptcy.

"There are still plenty of opportunities for there to be a settlement, but absent a dramatic change in one side or the other, it is unlikely there will be a settlement in the short term," said McMichael.

Claims filed in the case by the AFM-EPF and other creditors come to nearly $80 million, taking into account overlapping claims by the Pension Benefit Guaranty Corp., the agency of the federal government that insures pension plans.

But McMichael said creditor claims would be paid from a much smaller pool of money, probably less than $2 million total, that will be raised from donors.

"Any creditor recovery basically has to come from donations, and a very limited number of people are willing to donate to that purpose." he said. "A lot of people want to donate to the future of the orchestra, but there are not a lot of people willing to pay for yesterday's sins."

In making its case that $3.1 million be set aside to cover past-due payments, the AFM-EPF says the total compensation package - including uninterrupted participation in the fund - was agreed to by the association in exchange for the musicians' services after the Chapter 11 filing on April 16, 2011.

"It would be impossible for the debtor to operate the business of its iconic symphony orchestra without the continued willingness of its musicians to continue to show up and perform," the filing states. "Thus, to ensure the uninterrupted services of the musicians, the debtor, under its collective bargaining agreement, agreed to provide both current and deferred compensation."

Without continued compensation and accrual of pension benefits, "it is highly unlikely that they would have provided without any interruption their unique artistic talent that makes the Philadelphia Orchestra so iconic, thereby ensuring its survival beyond the petition date."

The total claim by the fund against the association for its withdrawal is $35 million, making it one of the case's largest creditors. A negotiated settlement was under discussion in past months - the terms being the amount owed and the period of time over which the sum would be paid - but the two sides have remained far apart.

"We don't beleiive we've had a serious offer from the POA to settle the matter," said Hair.

Before the Philadelphia Orchestra's withdrawal from the fund, it was one of the pension plan's largest contributing employers.

The filing says the debt to the fund exists because the musicians accrued benefits "that are irrevocable and must now be funded by other, more responsible contributing employers to the fund."