One major plank of the Philadelphia Orchestra Association's bankruptcy case fell into place Wednesday with court approval of a severance agreement between the orchestra and Peter Nero and the Philly Pops.

Optimism was ventured on other fronts in the Chapter 11 case. Though the association was still far from a resolution with musicians over a new labor deal, talks are coming to a head this weekend. Mediation with Stephen Raslavich, chief judge of U.S. Bankruptcy Court, Eastern District of Pennsylvania, is set to continue Sunday and Monday.

"[Raslavich] said to bring sleeping bags - no one is leaving until it gets resolved," association bankruptcy lawyer Lawrence G. McMichael told Eric L. Frank, the judge considering the bankruptcy petition.

"Progress is being made, and I am optimistic there will be a good outcome," McMichael said.

If a labor deal can be reached that would be acceptable not only to the orchestra's 100 or so musicians but to the American Federation of Musicians and Employers' Pension Fund, the case would take a significant turn toward conclusion. Instead of facing months of litigation, the association could file a plan in November for exiting bankruptcy.

"I won't be disappointed if everything is consensual," Frank said about deals falling into place, or at least potentially doing so, in the coming days.

An indication of which way the case will go is expected by the end of Monday, McMichael said.

With new court filings this week, the cost of the bankruptcy to the association topped $5 million, counting fees for bankruptcy lawyers and other professionals and the settlement with the Pops.

Separate talks with leaders of the Kimmel Center for the Performing Arts and Academy of Music continued Wednesday to "come up with modifications of the relationships," McMichael said.

"They've asked for a significant rent concession, and it's difficult," Kimmel president/CEO Anne Ewers said Wednesday. "We certainly want to be fiscally responsible as an organization, and part of that includes supporting the orchestra, but we've got to be careful as to what cost to our own future."

The orchestra owes the Kimmel $1.4 million in back rent, she said, creating a $450,000 deficit for the Kimmel Center in fiscal year 2011.

"We cannot sustain this," she said.

A solution - a possible orchestra-Kimmel merger is one - does not appear close at hand, Ewers said. "We've been doing all kinds of modeling, every scenario you can think of we've been running the numbers on. Frankly, this whole thing will require bold and innovative thinking."

The deal with the Pops, founded in 1979, calls for the association to provide $1.25 million to underwrite the costs of presenting a 2011-12 season and a certain amount of administrative support, and then the two will go their separate ways, ending a six-year provisional merger.

Though McMichael and Pops lawyer Paul R. Rosen told the court the agreement allowed the orchestra and Pops to continue making music (at one point, McMichael said he wished a piano could be hauled into court to demonstrate the artistry of Peter Nero that had hung in the balance), Judge Frank seemed swayed by more prosaic reasoning.

Hearing no objections to the severance agreement from other creditors, and citing the agreement's purpose - to circumvent potential litigation by the Pops had the association moved to throw out the 2005 merger agreement - he approved the deal.

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