Philadelphia Orchestra settles with musicians’ pension fund

Resolving the most quarrelsome aspect of its bankruptcy, the Philadelphia Orchestra Association has settled with the national musicians' pension fund that had threatened expensive and time-consuming litigation over the orchestra's withdrawal from the fund.

The American Federation of Musicians and Employers' Pension Fund (AFM-EPF), which had filed a $35 million claim in the case, will drop all its legal challenges in exchange for $1.75 million from the orchestra.

The development allows the orchestra to approach bankruptcy Judge Eric L. Frank with an uncontested reorganization plan, which means - if the orchestra can wrap up talks with the Kimmel Center over a new lease - that it could be out of bankruptcy within 90 days. The fund did not immediately respond to a request for comment.

"Our objective was total peace," said orchestra bankruptcy lawyer Lawrence G. McMichael, "and spending $1.75 million was worth it to achieve total peace and a quick resolution of the bankruptcy to get the orchestra back into the business of performing and raising money and all those good things."

(Actually, the orchestra's playing schedule has continued undisturbed since its Chapter 11 on April 16, 2011.

Still pending before the association can file a reorganization plan is a new contract with the Kimmel Center, its landlord for Verizon Hall. McMichael said the basic framework for an agreement has been worked out, and versions of the deal were being exchanged between the two.

"I think we'll get it cleaned up in the next week or two," he said.

The association's withdrawal from the pension fund was a major objective of the bankruptcy. The national pension fund, which draws participation from U.S. orchestras and freelance musicians, resisted the Philadelphia Orchestra's proposed withdrawal, and then, after the withdrawal was an accomplished fact on Nov. 1, pursued legal action on several fronts. Partly an attempt to recover what it claimed was an under-funded liability, and partly as a blunt deterrent against other orchestras trying similar withdrawals, the fund pursued a multi-tiered strategy - including the threat of bringing donors to the endowment into court to question whether they had really stipulated that their donations be held in endowment in perpetuity.

All those challenges will be dropped now, said McMichael and other sources.

Also related to the pension plan squabble was a contract between the orchestra and the American Federation of Musicians relating to the national electronic media agreement, which the AFM had declined to sign. It was signed recently, McMichael said, but was contingent on the settlement with the pension fund.

McMichael said the orchestra was in the process of figuring out how much it would need to raise in order to pay for creditors' claims in the case, including the $1.75 million for the pension fund. "We're in the ballpark, we think we can raise that amount and then we're done."

A contested reorganization plan - which the pension fund had promised absent a deal - would have cost the association time, as well as hundreds of thousands of dollars in legal fees, said McMichael.

"The bankruptcy has served its purpose and we need to get it over with. Now that we're not looking at any fights, you'll see this case wrap up in the next 90 days."