Bankruptcy and the arts: Three cases

Ah, but times and attitudes have changed. Hoo boy, have they changed. As I pointed out in this space five years ago, nowadays bankruptcy is just another business tool to be utilized with impunity by the rich and the shrewd, or by a cherished cultural organization whose dreams didn’t pan out.

A Chapter XI bankruptcy — in which an organization seeks temporary protection from its creditors until it can get its act together — doesn’t even necessarily reflect poorly on the quality of the management any more. Some 5 percent of America’s 500 largest companies have filed for bankruptcy during the past two decades.

Donald Trump’s companies have declared bankruptcy four times without apparent damage to his credibility as a successful developer or to his presidential aspirations. Au contraire, Trump cites his corporate bankruptcies as proof of his cleverness. The lenders he stiffed, Trump remarked at one Republican debate, “are not the nice, sweet little people that you think.” And most legal experts agree.

“Lenders are grown-ups,” the Georgetown law professor Adam Levitin recently told the Washington Post. “They’re consenting adults. There are almost no ma-and-pa bond holders any more.” Trump, says the professor, is “dealing with mega-banks and hedge funds. . . . These are guys that can take care of themselves.”

If you build it . . .

Unlike the Trump Taj Mahal, cultural institutions are worth saving even when they can’t pay their bills. Presumably on that theory, during the past five years three major Philadelphia cultural organizations resorted to what was once unthinkable in the not-for-profit world: They utilized bankruptcy — or the threat of bankruptcy — to avoid the even greater threat of extinction.

• The Philadelphia Orchestra, seeking relief from its burdensome contractual obligations to its musicians and its landlord (the Kimmel Center), filed a Chapter XI bankruptcy petition in April 2011. It was the first major U.S. orchestra to seek such protection (although others soon followed its example).
• The Please Touch Museum, formerly housed in loveable but cramped quarters in Center City, opened one of America’s great children’s museums in Memorial Hall in Fairmount Park in 2008, at a cost of $88 million. The guiding philosophy for this leap of faith was: “If you build it, they will come.” They came, all right, but not in sufficient numbers to generate $88 million any time soon. So last fall the Please Touch sought Chapter XI protection against $60 million it still owed to its bondholders.
• Philadelphia Theatre Company, formerly housed in the 104-year-old Plays and Players Theatre on equally quaint Delancey Place, opened its state-of-the-art Suzanne Roberts Theatre on South Broad Street in 2007, incurring a mortgage of $11 million from TD Bank. When PTC failed to make its payments on schedule, TD Bank foreclosed on the snazzy new building, an act that threatened PTC’s very survival. PTC didn’t seek bankruptcy protection, but it could have — and that prospect likely influenced TD Bank’s thinking as PTC scrambled to get its theater back.

Eat your cake

So how have these financial maneuverings worked out? The envelopes, please:

• The Philadelphia Orchestra was discharged from bankruptcy in 2012 after 15 months in purgatory. Having been released from its previous deficits and contracts, it’s now presumably empowered to make a fresh start. Its musicians still create beautiful music, although perhaps not as happily as before — and during the bankruptcy several key players departed for more financially secure situations.
• Philadelphia Theatre Company repurchased its theater from TD Bank last fall by bargaining the price down from $11 million to $5 million. In the negotiations, it turned out that PTC held more cards than casual observers might have thought: First, a 348-seat theater is a difficult property to unload. Second, no bank wants to suffer the communal ill will that would come from forcing a cherished 41-year-old company out of existence. Third, the Roberts family (which controls Comcast) chipped in $2.5 million rather than suffer the embarrassment of having the family name prominently displayed on an abandoned building. Between that gift and a $2 million loan from the Philadelphia Industrial Development Corporation, a $700,000 grant from the William Penn Foundation, and various other fund-raising, PTC not only got its theater back but has reduced its long-term operating debt by 70 percent. The net result of this crisis: PTC got to eat its cake and have it too.

For the kids

• Last week Please Touch Museum emerged from bankruptcy after a judge reduced its $60 million debt to $11.25 million. The museum has raised nearly $8 million since it filed for bankruptcy last fall, exceeding the amount it needed to settle its bond debt. Its unsecured creditors, to whom the museum owed $1.1 million, agreed to reduce that amount to $380,000 as part of the deal. Since the city itself is the museum’s biggest unsecured creditor, as well as its landlord, holding a 45-year lease, the museum enjoyed much the same kind of leverage with the city that Philadelphia Theatre Company enjoyed with TD Bank. Please Touch will celebrate its 40th anniversary this fall with a reasonable expectation of serving at least one more generation of kids.

Who, then, were the “consenting adults” who lost money in these three situations? The city, a bank, the Kimmel Center, and the Orchestra musicians — all of whom had not only a financial stake in the survival of their respective institutions but an emotional stake as well.

So, yes, there’s something to be said for hard-headed business tactics at soft-hearted arts organizations. And just think: They did it without Donald Trump.