Philadelphia Orchestra's board votes to file for bankruptcy

The Fabulous Philadelphians, the "solid gold Cadillac of orchestras," the internationally revered ensemble built by Stokowski and Ormandy, says it is headed for bankruptcy.

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.

Bankruptcy was also approved for the Academy of Music, which the orchestra owns, to protect its endowment and other assets, as well as Encore Series Inc., which operates the Philly Pops.

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."

Citing the orchestra's "fantastic imbalance" between income and expenses and the scale of the rescue plan, Board Chairman Richard B. Worley said Friday: "It isn't going to be easy, but I believe we can do it."

Management has retained Brian Tierney, former publisher and chief executive officer of now-defunct Philadelphia Media Holdings L.L.C., former owner of The Inquirer, to handle its public relations; its bankruptcy consultant is Joseph Bondi, who succeeded Tierney as interim CEO of the media company.

Musicians strongly oppose the filing, which could jeopardize funding of their pension, and they staged a showy (if harmonious) protest Saturday. As board members filed into the lobby of 1701 Market St., home of the law firm Morgan, Lewis & Bockius L.L.P., a string quartet serenaded them with Schubert and Mozart. Musicians handed them leaflets encouraging a "no" vote.

Security guards repeatedly asked the crowd of 60 active and retired players to leave, but the music continued. Finally guards said police were on their way, and the briefly tense climax dissolved: No police arrived, and the play-in ended as the board meeting began.

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.

At least one major Philadelphia philanthropy had encouraged the bankruptcy solution for several years, suggesting that support hinged on reorganization. Another major philanthropist and orchestra board member initially opposed the move, but has reconsidered.

"I was not in favor of it, but I don't see any other solution at this point. We're running out of money," said Carole Haas Gravagno (whose husband, Emilio Gravagno, is an orchestra retiree). "There are people in the community who want to help this process, and we're not going to let them down."

Initial listener reaction was less enthusiastic - especially given the suggestion that a bankruptcy filing could prompt players to audition for other ensembles.

"I am deeply saddened by the current situation," e-mailed Terry Champion, who was in Verizon Hall on Thursday when musicians handed out fliers detailing their position. "If we lose individuals like [oboist Richard] Woodhams, [clarinetist Ricardo] Morales, [cellist Efe] Baltacigil, and [violinist] Juliette Kang, I shall think twice about renewing my subscription. I mean, what would be the point? We are not just talking about orchestral morale but audience morale."

"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.

But if the players' union, the American Federation of Musicians, opposes the bankruptcy, it could succeed in blocking it.

"They may have a decent argument that the filing is not in good faith if the orchestra does not seem to be in bankruptcy," wrote David Skeel, a University of Pennsylvania Law School professor, in an e-mail. "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."

It is management's position that the $140 million in orchestra and Academy of Music endowment is donor-restricted, therefore untouchable. Others were not so sure.

"I don't know that I've ever had a case in which a group with these kinds of assets has come in with anything like these kinds of resources and claimed poverty and gotten away with it," said one of the musicians' attorneys, who asked not to be named.

But 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."