Klarinet Archive - Posting 000066.txt from 2011/04

From: "Karl Krelove" <kkrelove@-----.net>
Subj: Re: [kl] Philadelphia Orchestra in Chapter 11
Date: Thu, 21 Apr 2011 14:42:42 -0400

Peter Dobrin has been doing an apparently thorough job of describing the
issues (with one exception noted below) and reporting the opposing positions
on them. I have not seen (and I think I wish for) some degree of reporting
from the Business/Financial Section. I'd be keenly interested to know what
someone with more experience from the business and legal side of all this
makes of it. How do these business-related issues, most of which are not
directly related to the musicians' contracts (or the ongoing bargaining for
a new one, although the orchestra's finances obviously have an effect on the
negotiating process), relate to those in other cities whose orchestras are
also under stress? Two of the issues in the Chapter 11 filing have to do
with rental arrangements with the Kimmel Center and affiliation agreements
with Peter Nero and the Pops, both of which are unique to Philadelphia.

I don't understand the pension situation at all - the orchestra management
doesn't seem to be threatening to withdraw all pension support or cut off
pensions of past or future retirees, they seem to be trying to change some
administrative arrangement that never is clearly explained in the reporting
I've seen so far.

Karl

> -----Original Message-----
> From: Steve Boardman [mailto:sboardman@-----.com]
> Sent: Thursday, April 21, 2011 12:14 PM
> To: klarinet@-----.com
> Subject: [kl] Philadelphia Orchestra in Chapter 11
>
> The state of the arts appears to be getting critical. The Philadelphia
> Orchestra just filed for Chapter 11 bankruptcy protection. (The
> Philadelphia
> Orchestra!!!!) Here is the article from today's (April 21, 2011)
> Philadelphia Inquirer:
>
>
>
> Bankruptcy Court hears opening statements on Philadelphia Orchestra's
> Chapter 11 petition
>
> By Peter Dobrin
>
> Inquirer Music Critic
>
> Arguing that there are aspects of the musicians' contract "we can no
> longer
> afford," lawyer Lawrence G. McMichael on Wednesday ushered the
> Philadelphia
> Orchestra Association's Chapter 11 petition into U.S. Bankruptcy Court.
>
> In opening statements, McMichael invoked the orchestra's history and
> stature, saying the ensemble's economic ripples were in the "hundreds
> of
> millions" of dollars, and calling it "one of the three or four premiere
> orchestras in the world."
>
> However, the orchestra's labor and pension costs; its relationship with
> the
> owner of its hall, Kimmel Center Inc.; and its obligations to Peter
> Nero and
> the Philly Pops were burdens, he said.
>
> "Things have to change, and they are going to change - the kind of
> change to
> put the Philadelphia Orchestra, the Academy of Music," and Encore
> Series
> Inc., the Pops' legal name, "on a sound financial platform," he said.
>
> Orchestra musicians strongly opposed the association's filing on
> Saturday in
> U.S. Bankruptcy Court for the Eastern District of Pennsylvania, and
> their
> attorney Wednesday called the action unnecessary and a mistake.
>
> The "Orchestra of Firsts" is "now the first major cultural institution
> in
> this country to file Chapter 11," lawyer Bruce Simon told Judge Eric L.
> Frank and a courtroom of about 60 participants and observers, including
> lawyers, orchestra staff and board, and a few musicians.
>
> Lawyers for management and musicians had agreed a few minutes before
> the
> start of Wednesday's hearing that the afternoon's proceedings would not
> include a motion by management to impose a new contract on musicians.
> Negotiations for a new deal with the players continue, as do all
> concerts.
>
> Much of the hearing was devoted to procedural matters, but both sides
> quickly outlined one of the central issues in the case: Whether the
> orchestra, which is seeking to wipe the slate clean on tens of millions
> of
> dollars that it may be obligated to pay for the musicians' pension
> plans,
> could be compelled to use some of its $140 million in endowment to
> satisfy
> that obligation.
>
> The nest egg ($120 million belonging to the orchestra, $20 million
> owned by
> the Academy of Music) is meant to be kept in perpetuity, the income
> from it
> spent for various projects or general operating costs.
>
> The orchestra says it has spent nearly all its unrestricted endowment -
> funding that had no restrictions placed on it by donors. Only
> donor-restricted endowment remains, and the association's position is
> that
> it cannot be spent.
>
> Simon, the musicians' lawyer, suggested that bankruptcy supersedes such
> agreements. "Restrictions are not restrictions in this court," he said.
>
> The case combines the bankruptcy petition of three organizations: the
> orchestra, the Academy of Music (which the orchestra owns), and Encore
> Series.
>
> Frank will have to navigate a complex series of relationships and
> contracts,
> including the now-expired merger agreement between the orchestra and
> the
> Pops, and the still-current contract between the orchestra and Nero, as
> well
> as the contract between the orchestra and the Kimmel that grants the
> orchestra a lowered rent ($2.3 million a year) in Verizon Hall in
> exchange
> for giving the Kimmel the right to book and the responsibility to
> maintain
> the academy.
>
> The orchestra's position on whether it wants to keep its relationship
> with
> Nero, and whether it wants to keep the Pops, is not entirely clear. But
> the
> orchestra refused to announce a 2011-12 season for the Pops, and Nero
> exercised a clause in his contract calling for mediation and
> arbitration.
>
> Last Thursday, Nero took away a victory from JAMS Arbitration, a
> private
> dispute-resolution group, in which Judge Diane M. Welsh ordered the
> association to commit to concert and rehearsal dates, and to "publicly
> announce same and issue notice to the Philly Pops subscribers within 15
> days
> of the date hereof."
>
> That order was superseded by the Chapter 11 filing and will now become
> part
> of the proceedings.
>
> "We can't afford what the injunction requires us to do," McMichael
> said.
>
> Pops lawyer Paul R. Rosen told the court that the association had
> consistently neglected its relationship with Nero and the Pops.
>
> He also said he would object to the association's choice of a law firm
> because of a conflict of interest: McMichael is a partner at Dilworth
> Paxson, of which orchestra board member Joseph H. Jacovini is chairman.
> Dilworth would then be representing the Pops in bankruptcy, while
> opposing
> it in certain matters.
>
> McMichael called the issue a red herring. But apart from Rosen's
> objection,
> Frank raised the question himself and said rulings had been divided. He
> said
> he would consider the matter after Rosen filed his objection.
>
> The association's filing yielded a cache of information about its
> business
> operations. Among them:
>
> The orchestra will put in escrow money being sent in by subscribers to
> its
> 2011-12 season as a gesture of reassurance.
>
> Orchestra management is paying McMichael $750 an hour, and paid
> Dilworth
> Paxson $319,000 in the 90 days before Saturday's filing.
>
> Orchestra president Allison Vulgamore could be the recipient of certain
> incentives under the terms of her employment contract.
>
> The association listed about $1.1 million in debts to its vendors at
> the
> moment of the filing. But the bankruptcy move was not primarily about
> its
> short-term cash position.
>
> What the orchestra seeks, long-term, was spelled out in a declaration
> in
> support of first-day motions by orchestra chairman Richard B. Worley:
>
> "The debtors seek in the Chapter 11 process to achieve the following
> outcomes: (1) relief from pension obligations, (2) relief from current
> contractual obligations to Peter Nero and others, (3) renegotiated
> contractual agreements with kCi [the Kimmel], (4) a new collective
> bargaining agreement with Local 77 [the musicians], and (5) a court-
> approved
> plan with all these elements that will attract donor support."
>
> McMichael told the court he hoped to work with Nero and the Pops on a
> resolution with "the maximum amount of consent and the minimum amount
> of
> hostility."
>
> The next significant hearing is to be May 9.
>
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