Philadelphia Orchestra emerging from bankruptcy

After becoming the first major U.S orchestra to file Chapter 11 14½ months ago, the Philadelphia Orchestra Association is leaving bankruptcy.

U.S. Bankruptcy Court Judge Eric L. Frank gave his approval Thursday to the orchestra's reorganization plan, which drew no opposition at a hearing attended by most of the major interested parties. About $3 million will be distributed to creditors based on a sliding scale formula by the end of July.

The April 16, 2011, bankruptcy petition sought rent relief from the Kimmel Center and lower labor and pension costs with musicians, and while the case raised "some very significant legal issues," Frank noted, contracts were revamped or rejected with little of the case growing truly adversarial.

"The orchestra is an important cultural and civic institution, and any Chapter 11 case comes with the risk of failure. Had that occurred, it would have been a great loss for Philadelphia, the region and the music world," the judge told the courtroom.

He expressed hope that the changes would put the orchestra in a position to "continue to perform for audiences for many years to come."

Orchestra lawyer Lawrence G. McMichael led orchestra staffers, board members and others in a "traditional orchestra thank you" for the judge: a round of applause.

Though the orchestra's expenses were outpacing income by a substantial amount, the bankruptcy route was not taken in response to mounting debt. Rather, the association used the maneuver as a "hammer" (in McMichael's words) to extract a 20-percent pay cut from musicians; a break in rent from Verizon Hall; to shift pre-existing pension burden to the federal agency that insures defined-benefit pensions; to jettison a merger-in-process with the Encore Series, Inc., which operates the Philly Pops.

The process took longer than expected - and professional fees, at just under $10 million, were triple the forecast - but the orchestra achieved all its major objectives.

"This has been an incredible effort on the part of many, and, as the judge said, to get to where we were able to do this consensually required the cooperation of many," said orchestra chairman Richard B. Worley after the hearing.

Getting out of bankruptcy is only a mile marker - if a major one - in the orchestra's arduous march to recovery, Worley noted. Ticket sales must be revived, donor confidence restored.

"We feel tremendous responsibility to make it work and to deliver on our goal of revitalizing this orchestra for Philadelphia and the music world at large," he said.

The orchestra's new business plan does not call for the immediate disappearance of annual deficits. In fact, the orchestra must finish raising about $60 million to underwrite shortfalls for the next several seasons while it begins to plan an endowment drive that will eventually provide investment income to help cover the budget gap. The goal of that drive is unknown, but it is expected to be well north of $100 million.

"We have a lot of work to do over a long period of time," said Worley, who testified Thursday that he and his wife had so far contributed $10 million to the orchestra. "There is more work ahead of us than behind us."

Contact Peter Dobrin at 215-854-5611 or pdobrin@phillynews.com. Read his blog at www.philly.com/artswatch.