Philadelphia Orchestra Association Files Plan of Reorganization and Disclosure Statement to Exit Bankruptcy Protection

The Philadelphia Orchestra Association (POA) and its wholly owned subsidiary, the Academy of Music, Inc. (AOM), today announced it has filed with the United States Bankruptcy Court its Plan of Reorganization (POR) and Disclosure Statement, signaling its organizational and financial preparedness to exit from Chapter 11 bankruptcy protection.

In filing for reorganization on April 16, 2011, The Philadelphia Orchestra Association detailed several goals that needed to be accomplished to ensure long-term financial health for the organization, including preserving artistic excellence. These goals included a renewed collective bargaining agreement with the musicians of The Philadelphia Orchestra; a shift away from its defined benefit pension plans, including an exit from the American Federation of Musicians and Employers’ Pension Fund (AFM-EPF); a renegotiation of its lease with the Kimmel Center; and a resolution of its challenged business relationship with Peter Nero and the Philly Pops (PNPP).

Every goal detailed at the outset of this difficult yet necessary process has been accomplished consensually through settlements and agreements-in-principle achieved via the bankruptcy process.

In its filing, the Association has agreed to pay $5.49 million to creditors. Of that total, $4.25 million will be paid on or before the POR effective date. Although there will be additional payments to some key creditors, the vast majority of claims will be fully paid on the effective date as established by the U.S. Bankruptcy Court and the Association. The breakdown of key creditors’ total payments—which reflects full settlement of all claims—is as follows:
Pension Benefit Guaranty Corporation (PBGC): Currently estimated at $1,317,387
American Federation of Musicians and Employers' Pension Fund (AFM-EPF): $1.75 million
The Kimmel Center: $748,000
Peter Nero and the Philly Pops (PNPP): $1.25 million (This will be paid in full prior to the Association’s exit).

The remaining General Unsecured Claims against the POA will receive payment equal to 50% of the aggregate amount in U.S. dollars, without payment of interest (Estimated Total: $276,855). The remaining General Unsecured Claims against the AOM will receive payment equal to 100% of the aggregate amount in U.S. dollars, without payment of interest (Estimated Total: $85,891). Convenience Class Claims will receive 100% of their respective claim if the claim value is $1,000 or if the holder of the claim reduces the claim to $1,000 (Estimated Total: $38,616).

“With the number of business relationships that needed to be re-set within the Orchestra’s reorganization process, we are incredibly proud, and incredibly grateful, that we have been able to file a consensual Plan of Reorganization,” said Richard B. Worley, Chairman of the Board of Directors for The Philadelphia Orchestra Association. “It was always our goal to reach settlements with our partners in this process as we had a keen awareness of how valuable peace was within this difficult process. Our Board of Directors sought consensus at every turn and at every agreement. It took significant time but I believe that it is time well spent as the Association was able to address more than $100 million in claims, debts, and liabilities with a settlement of just $5.49 million. We have not only ensured that The Philadelphia Orchestra will remain vibrant through the Plan of Reorganization but we have restructured for long-term fiscal health, ensuring the Orchestra’s vibrancy for generations to come. I could not be more grateful to all of our partners who recognized the Orchestra’s important role as a cultural icon and found a way to reach agreement with us based upon our critical needs.”

In addition to the $3 million needed to settle creditors’ claims on the POR effective date, which is a condition to exiting bankruptcy, the Association incurred $8.9 million in professional service fees and other direct restructuring costs. All of the funds necessary to address the settlement of creditor claims on the POR effective date, the professional service fees, and other direct restructuring costs have been raised. The funds raised for the Association’s settlement of claims on the POR effective date come from gifts to the Transformation Fund made by members of the Association’s Board of Directors. The funds pledged to address the professional services fees and other direct restructuring costs also come from gifts to the Transformation Fund by members of the Association’s Board of Directors matched by a major funder who designated that its gift could be used for bankruptcy-related costs.

“The leadership of our Board of Directors in assuming the costs of our restructuring and reorganization cannot go unacknowledged,” said Allison Vulgamore, president and CEO of The Philadelphia Orchestra. “I am deeply gratified by their continued leadership and strong commitment to maintaining The Philadelphia Orchestra as a world-class ensemble. Their generosity has been a constant within this process. It is also important to recognize that today’s filing would simply not have been possible without the leadership support of Philadelphia’s philanthropic community, notably the William Penn Foundation, Wyncote Foundation, Neubauer Family Foundation, and Gerry Lenfest. The confidence demonstrated by these donors—and the positive reinforcement of our steady diligence and our accomplishments within this process—has been critical and it allowed us much-needed time and flexibility in reaching agreements with valued partners in this process, especially our treasured musicians and the Kimmel Center.”

Although the costs associated with professional service fees and the settlement of creditors’ claims on the POR effective date have been fully addressed, fundraising will play a critical role in the Association’s successful emergence from reorganization. To date, the Association has secured $36 million of a newly updated $49 million fundraising goal for the first phase of the Transformation Fund—the fund created in April 2011 to assist the Orchestra through its financial restructuring and in executing its Plan of Reorganization. The increased total funding for Phase I reflects additional needs based upon the challenges, length, and complexity of the bankruptcy process and a lower endowment draw than was originally anticipated. In cultivating donations for its Transformation Fund, the Association has also been able to access several multi-million dollar challenge grants offered to the organization by the Philadelphia philanthropic community, which are reflected in the $36 million total. To fulfill the remaining challenge grants from major funders, the Association must raise an additional $5.7 million by August 31, 2012. This effort will take place concurrently with the Orchestra’s Annual Fund campaign and special initiative funding, both of which are needed to sustain operations over the life of the Orchestra’s POR. It is also separate from a larger endowment campaign, which will commence after fundraising for the Transformation Fund has been completed.

Said Mr. Worley, “Our work is far from complete, especially with regard to fundraising for our future. We made strategic decisions as a Board of Directors to reach consensus with key partners and those decisions increased our fundraising need. That said, I am deeply encouraged by the support we have received to date from the philanthropic community, and with our filing today I am anxious to continue conversations with major funders about their support of The Philadelphia Orchestra. Although our fundraising needs and efforts are ambitious, our goals are rooted in reality. We are having excellent conversations with prospective donors and we are heartened by the number of new and returning donors who have chosen to support the Orchestra in its time of need. Every gift is a vote of confidence in the Orchestra’s future and every gift directly supports the artistry of our world-renowned ensemble. I have no doubt that confidence will soar as we file our Plan of Reorganization and move toward an exit from reorganization.”

“The most important thing for us to acknowledge on this day is that despite the challenges, intensity, and length of this process, our incredible staff and musicians provided continuous exemplary performances to our audiences,” said Ms. Vulgamore. “Without my colleagues, for whom I have the deepest respect and admiration, The Philadelphia Orchestra would not be making this positive announcement. Our musicians and our staff are our heart and while these have been trying times, we look toward emergence with confidence in our future. We depart for our innovative China Residency in just a few short days. We will celebrate the legacy of Leopold Stokowski at the Academy of Music in June. And we welcome the infectious talents of Yannick Nézet-Séguin as he becomes our new music director in October. There is still much work to be done but together—and with such momentum we are succeeding in creating a stronger Orchestra for Philadelphia and the world.”

For more information regarding The Philadelphia Orchestra, its Plan of Reorganization, or its 2012-13 artistic season, please visit www.philorch.org. To support The Philadelphia Orchestra with a donation to the Transformation Fund, please visit www.philorch.org/support or call 215.893.3133.

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