Philadelphia Orchestra files for bankruptcy

The Philadelphia Orchestra has filed for bankruptcy. This has been the subject of much off-the-record chatter in the orchestral world for the past year and finally came to fruition over the weekend. Philadelphia is often considered one of the Big Five orchestras in the United States — built on the famous sound of Leopold Stokowski and Eugene Ormandy.

Here's the story from Peter Dobrin, the Philadelphia Inquirer's music critic:

By Peter Dobrin

The Philadelphia Inquirer

PHILADELPHIA — The board of the 111-year-old Philadelphia Orchestra voted Saturday in favor of a Chapter 11 reorganization. The claim was expected to be filed this weekend in U.S. Bankruptcy Court, Eastern District of Pennsylvania, and the orchestra was expected to list assets at several times liabilities — an equation unusual for businesses seeking bankruptcy protection, according to several experts.

The move makes Philadelphia's the first major U.S. orchestra to file for bankruptcy, say industry groups and veteran observers.

The majority vote came with several abstentions, and all five musicians on the 75-member board voted "no," according to two sources.

Concerts and business operations continue unfettered. In fact, orchestra leaders in the next few days expect to roll out a $160 million fund-raising campaign — their largest and riskiest ever — to save the orchestra from the worst-case scenario of liquidation.

Management said the bankruptcy was an unhappy but prudent step in a long-term recovery plan. Players committee chairman John Koen called the decision "really tragic." He said he worried for the orchestra's future.

"I think it was unnecessary," he said. Management "has not turned over every stone — they haven't gone to any donor outside their comfort zone — to get the broad-based support other orchestras have. I know of players who are considering auditions for other orchestras, and I hope that we will not lose the great orchestra we have. If we do, what is the point of all this? Who would care about funding a second-rate orchestra?"

Chief conductor Charles Dutoit sent this note to orchestra musicians:

"I feel overwhelmed and horrified by the events of the past few days, and I cannot yet grasp what the consequences of today's vote will be. ... You know how much I have always cherished my relationship with all of you. I am speechless at the moment but wanted you to know that you are in my heart, in my thoughts, and I look forward to being with you again in 10 days to face these difficult times together."

Musicians strongly oppose the filing, which could jeopardize funding of their pension.

Management has weighed bankruptcy for more than a year since deciding it no longer wanted to participate in the players' defined-benefit pension fund. Doing so would trigger liability of $25 million (the exact amount is in dispute), but participation represents an annual obligation of about $3 million that leadership believes it can shed in bankruptcy proceedings, along with other contractual obligations it says would save it more than $40 million over five years.

"Let's face it. There are very few things left in Philadelphia that are still world-class. The Philadelphia Orchestra tops the list," Stuart E. Hirsch wrote in a note to Worley and CEO Allison B. Vulgamore. "In my opinion, the orchestra members, past and present, did their job. ... We need a board that can do the same. With the resources and endowment, there should be no excuse for bankruptcy. We need creative ideas to preserve this treasure."

Orchestra leaders say that is just what they have done, though several bankruptcy and charity lawyers said they were puzzled by an organization that enters Bankruptcy Court with assets — $140 million in endowment — that are more than triple its liabilities.

"There's no requirement that a debtor be insolvent, but if the debtor clearly is solvent, the court might be persuaded that the case should be dismissed as not having been filed in good faith," wrote David Skeel, a University of Pennsylvania Law School professor, in an e-mail.

A Bankruptcy Court has wide latitude in coming up with a plan to emerge from reorganization, said Marie T. Reilly, associate dean for academic affairs and law professor at Pennsylvania State University.

"The beauty of Chapter 11, what makes it so interesting, is that the lawyers and all of the parties custom-make a solution," she said. "It's like commissioning a piece of music. You make a symphony that is appropriate for this group of people."

(c) 2011, The Philadelphia Inquirer.

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