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 it.
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 fund did not immediately respond to a request for comment.
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 - it could be out of bankruptcy within 90 days.
"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 filing April 16, 2011.)
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 Nov. 1, pursued legal action on several fronts.
Partly in an attempt to recover what it claimed was an underfunded liability, and partly as a blunt deterrent against other orchestras tempted to try similar withdrawals, the fund pursued a multitiered 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, according to 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 figuring out how much it would need to raise to pay for creditors' claims in the case, including the $1.75 million for the pension fund. "We're in the ballpark," he said. "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 and hundreds of thousands of dollars in legal fees, said McMichael - on top of the estimated $8.5 million-plus in legal and professional fees already incurred.
"The bankruptcy has served its purpose, and we need to get it over with," McMichael said. "Now that we're not looking at any fights, you'll see this case wrap up in the next 90 days."
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