Woodruff Center’s debt, credit rating loom over ASO musician contracts

By David Pendered

The musician lockout at the Atlanta Symphony Orchestra was foreshadowed almost a year ago in a rating action by Moody’s Investors Service.

The Atlanta Symphony Orchestra has been locked out of the 2014 season because of contract negotiations clouded by the Woodruff Center's debt. Credit: tripadvisor.com

The Atlanta Symphony Orchestra has been locked out of the 2014 season because of contract negotiations clouded by the Woodruff Center’s debt. Credit: tripadvisor.com

Moody’s message was clear: Either ASO’s fiscal drain on Robert W. Woodruff Arts Center, Inc. would be reduced, or Moody’s may lower the credit rating on $188.26 million in debt Woodruff sold in 2009. Moody’s expected action this autumn.

Moody’s did not comment on Woodruff’s other debt, such as the $14.5 million Woodruff borrowed in 2008 to build an amphitheater in Alpharetta.

The ASO operates Verizon Wireless Amphitheatre at Encore Park, and Woodruff owns the facility, according to the theater’s website, vzwamp.com.

In its rating action, Moody’s cautioned investors that Woodruff may eventually face challenges in repaying the $188.26 million. Specifically, Moody’s lowered its outlook of Woodruff’s ability to repay the debt from stable to negative. Here’s the highlight:

  • “The negative outlook is primarily based on the ongoing deficit operations of the Atlanta Symphony Orchestra (ASO), a division that comprised 31 percent of operating expenses in fiscal 2013. While other divisions are operating at close to breakeven, the ASO’s deficits are an ongoing drag on overall performance. ASO deficits combined with several one-time expenses in fiscal 2013 caused a narrowing of the operating cash flow margin to just 2.1 percent.”

Furthermore, Moody’s advised investors that it may lower Woodruff’s credit rating in 2015, depending, in part, on the outcome of contract negotiations with musicians this autumn:

  • Moody's Investors Service views Woodruff Arts Center as a regional attraction with a credit rating at risk because of the operating costs of the Atlanta Symphony Orchestra. Credit: tripadvisor.com

    Moody’s Investors Service views Woodruff Arts Center as a regional attraction with a credit rating at risk because of the operating costs of the Atlanta Symphony Orchestra. Credit: tripadvisor.com

    “Moody’s will monitor how the center responds to the fiscal imbalance with key points expected in 2014 as the fiscal 2015 budget is developed and the current contract with the musicians expires in October 2014. In the absence of a plan for and preliminary positive indications of operating performance improvement, the rating could move down.”

This insight on the relation between the ASO and Woodruff’s credit rating is significant, given that federally mediated contract negotiations with musicians have failed to reach a settlement. A lockout that was scheduled through Nov. 8 is on a trajectory to be extended.

The insight also provides a perspective into the fiscal concerns being weighed by ASO and Woodruff as executives press to reduce costs by reducing the number of performers. ASO is an operating division of Woodruff Arts Center.

Finally, the insight also highlights the number of entities that, at the outset of the great recession, helped Woodruff sell more than $202 million in bonds that have implications on the ASO. The bulk of the bonds, the amount of $188.2 million, was to refinance existing debt at a lower rate; the bonds for the Alpharetta outdoor theater was new debt.

The bond issuers and amounts include the following, according to Electronic Municipal Market Access:

  • Verizon Wireless Amphitheater at Encore Park, in Alpharetta, is owned by the Woodruff Arts Center and managed by the Atlanta Symphony Orchestra. The classic rock band ZZ Top is the next major headliner at a concert slated for 2015. Credit: awesomealpharetta.com

    Verizon Wireless Amphitheater at Encore Park, in Alpharetta, is owned by the Woodruff Arts Center and managed by the Atlanta Symphony Orchestra. The classic rock band ZZ Top is the next major headliner at a concert slated for 2015. Credit: awesomealpharetta.com

    Development Authority of Fulton County – $183 million;

  • Development Authority of DeKalb County – $5.2 million;
  • Development Authority of Alpharetta – $14.2 million.

Incidentally, Moody’s has not weighed in on the current lockout. Moody’s did issue a comment to investors in September 2012, during the last contract dispute between musicians and ASO and Woodruff. Nor have Moody’s analysts issued an update on the Woodruff bonds since Nov. 26, 2013.

At that time, Moody’s issued a rating action on two series of bonds issued by the Woodruff Center. The action did two things:

  • Reaffirmed Moody’s rating of A2 on the $188.26 million of debt. This rating is an investment grade. It ranks seventh lowest in the investment category, on a scale of 10;
  • Downgraded the outlook on Woodruff’s ability to repay the loans from stable to negative.

This change on the outlook telegraphs a warning to investors. It alerts investors that Moody’s expects to review the credit rating within a year or two. The rating could be raised; it could be lowered; it could be unchanged.

 

David Pendered, Managing Editor, is an Atlanta journalist with more than 30 years experience reporting on the region’s urban affairs, from Atlanta City Hall to the state Capitol. Since 2008, he has written for print and digital publications, and advised on media and governmental affairs. Previously, he spent more than 26 years with The Atlanta Journal-Constitution and won awards for his coverage of schools and urban development. David graduated from North Carolina State University and was a Western Knight Center Fellow. David was born in Pennsylvania, grew up in North Carolina and is married to a fifth-generation Atlantan.

14 replies
  1. RuthieD says:

    Fair enough as far as it goes, but there is more to this story.  The majority of the Woodruff bond issuance was refining existing debt.  However — what was the purpose of the original debt?  If it was the High expansion, how does that square with public reports at the time that 100% of the funds for the High expansion has been raised?  Given the high debt load and the concerns articulated by Moody’s, why has the Woodruff Board systematically cut ASO funding over the years?  Trying to avert the lockout, a  (now former) board member raised commitments of over $800,000 (with relatively little effort) to cover operating shortfalls.  Why did the Woodruff board decline the funds in favor of a lockout?  As long as we are asking tough questions, let’s not forget that non-profits are notoriously susceptible to abusive conflict of interest transactions with insiders, particularly when non-profits with large endowments, like the Woodruff — think money management fees, capital projects, legal work, etc.  Nothing inherently wrong with a transaction with a board member as long as there is robust management of conflicts, transparency and the transaction is at or even below fair market value.  Is that the case with the Woodruff?  On a different tack, let’s ask why the Woodruff Board, quietly, with no public disclosure and debate, amended the charter of the Woodruff Arts Center to remove reference to the symphony at least a full year before the Moody’s warning?  Incidentally, the same think happened in Minnesota before their protracted Orchestra labor dispute and the folks responsible for that move (and many others whose playbook Ms. Hepner and the Woodruff Board seem to be following) are now nothing more than a bad civic memory and the Minnesota charter has been re-amended to restore the symphony to a stated purpose of the organization. The point is — the Moody’s warning is only the tip of the story and many, many more questions need to be asked of the Woodruff board.Report

    Reply
  2. RuthieD says:

    Fair enough as far as it goes, but there is more to this story.  The majority of the Woodruff bond issuance was refining existing debt.  However — what was the purpose of the original debt?  If it was the High expansion, how does that square with public reports at the time that 100% of the funds for the High expansion has been raised?  Given the high debt load and the concerns articulated by Moody’s, why has the Woodruff Board systematically cut ASO funding over the years?  Trying to avert the lockout, a  (now former) board member raised commitments of over $800,000 (with relatively little effort) to cover operating shortfalls.  Why did the Woodruff board decline the funds in favor of a lockout?  As long as we are asking tough questions, let’s not forget that non-profits are notoriously susceptible to abusive conflict of interest transactions with insiders, particularly when non-profits with large endowments, like the Woodruff — think money management fees, capital projects, legal work, etc.  Nothing inherently wrong with a transaction with a board member as long as there is robust management of conflicts, transparency and the transaction is at or even below fair market value.  Is that the case with the Woodruff?  On a different tack, let’s ask why the Woodruff Board, quietly, with no public disclosure and debate, amended the charter of the Woodruff Arts Center to remove reference to the symphony at least a full year before the Moody’s warning?  Incidentally, the same think happened in Minnesota before their protracted Orchestra labor dispute and the folks responsible for that move (and many others whose playbook Ms. Hepner and the Woodruff Board seem to be following) are now nothing more than a bad civic memory and the Minnesota charter has been re-amended to restore the symphony to a stated purpose of the organization. The point is — the Moody’s warning is only the tip of the story and many, many more questions need to be asked of the Woodruff board.Report

    Reply
  3. BPJ says:

    The Moody’s analysis does not say that costs have to be reduced. It notes that eliminating the shortfall could come from reducing costs, increasing earned income (e.e., ticket sales), or increasing contributed income (e.g., annual fund donations or income from a larger endowment) – or some combination of those measures.
    Given that donations to nonprofit arts are lower here than in comparable American cities, one answer would be for Atlanta’s foundations and wealthy individuals to do what their counterparts in those other cities have already done.Report

    Reply
  4. BPJ says:

    The Moody’s analysis does not say that costs have to be reduced. It notes that eliminating the shortfall could come from reducing costs, increasing earned income (e.e., ticket sales), or increasing contributed income (e.g., annual fund donations or income from a larger endowment) – or some combination of those measures.
    Given that donations to nonprofit arts are lower here than in comparable American cities, one answer would be for Atlanta’s foundations and wealthy individuals to do what their counterparts in those other cities have already done.Report

    Reply
  5. Guest says:

    To second RuthieD’s comment, I agree that there is more that needs to be explored here, as the WAC hardly acted benevolently until the pressure from Moody’s. There have been several audience advocate reviews of publicly available documents (especially the WAC’s IRS 990 forms) that have begun raising red flags about what has been going on, especially with regard to potential conflicts of interest. Even if the lockout ends today, there seems to be enough sustained grassroots interest in exposing the WAC machinations that asking these questions will likely continue, as well it should. Until we have a symphony organization that is independent of WAC control, these are the questions that need to be asked continually as long as private donations to the ASO are handled through Woodruff. It is unconscionable that this organization can’t be trusted to manage the community’s support of its most esteemed performing arts division.Report

    Reply
  6. Guest says:

    To second RuthieD’s comment, I agree that there is more that needs to be explored here, as the WAC hardly acted benevolently until the pressure from Moody’s. There have been several audience advocate reviews of publicly available documents (especially the WAC’s IRS 990 forms) that have begun raising red flags about what has been going on, especially with regard to potential conflicts of interest. Even if the lockout ends today, there seems to be enough sustained grassroots interest in exposing the WAC machinations that asking these questions will likely continue, as well it should. Until we have a symphony organization that is independent of WAC control, these are the questions that need to be asked continually as long as private donations to the ASO are handled through Woodruff. It is unconscionable that this organization can’t be trusted to manage the community’s support of its most esteemed performing arts division.Report

    Reply
  7. Kate says:

    Just ridiculous – the Woodruff Board provided that info to Moody’s, and obviously slanted the presentation to fit their desired outcome – cutting the Symphony radically.   Given that the High was the primary driver of bond debt, and the WAC data shows the ASO to cover a higher percentage of their operating costs, why isn’t the WAC Board pointing at  the High or Alliance as the driver of their financial issues?  Because the overhead there is fixed, while the ASO costs are labor.  
     And, if the WAC had any real intention of having a world-class symphony, they would have busted their butts to hire a strong fundraising team for the Sympony. But they pretty much let all that talent leave Atlanta and haven’t made much effort to raise money for the ASO.  Talk to most corporate donors, and the only thing you’ll hear is that money should go to the WAC.  The story line is always that the WAC umbrella provides funding for the entities (Alliance, High, Symphony and YA) and that the entities fundraising is “programmatic.”  So basically the WAC has limited the entities to raising money for specific programs, but discouraged endowment-level giving.Report

    Reply
  8. Kate says:

    Just ridiculous – the Woodruff Board provided that info to Moody’s, and obviously slanted the presentation to fit their desired outcome – cutting the Symphony radically.   Given that the High was the primary driver of bond debt, and the WAC data shows the ASO to cover a higher percentage of their operating costs, why isn’t the WAC Board pointing at  the High or Alliance as the driver of their financial issues?  Because the overhead there is fixed, while the ASO costs are labor.  
     And, if the WAC had any real intention of having a world-class symphony, they would have busted their butts to hire a strong fundraising team for the Sympony. But they pretty much let all that talent leave Atlanta and haven’t made much effort to raise money for the ASO.  Talk to most corporate donors, and the only thing you’ll hear is that money should go to the WAC.  The story line is always that the WAC umbrella provides funding for the entities (Alliance, High, Symphony and YA) and that the entities fundraising is “programmatic.”  So basically the WAC has limited the entities to raising money for specific programs, but discouraged endowment-level giving.Report

    Reply
  9. Kate says:

    I’m rooting for the musicians to pick up a new 501(c)3 designation and work with local venues such as Spivey Hall to play as a new organization – perhaps the “Georgia Symphony Players” and let the WAC try to figure out how to make money off that cavern on their campus that they claim is a symphony hall.

    Wonder how many more Grammy’s the ASO might have had in a world-class acoustical facility instead that barn?Report

    Reply
  10. Kate says:

    I’m rooting for the musicians to pick up a new 501(c)3 designation and work with local venues such as Spivey Hall to play as a new organization – perhaps the “Georgia Symphony Players” and let the WAC try to figure out how to make money off that cavern on their campus that they claim is a symphony hall.

    Wonder how many more Grammy’s the ASO might have had in a world-class acoustical facility instead that barn?Report

    Reply
  11. Guest says:

    Kate – I am right there with you! The WAC arguably has the better hand at the moment as they control the orchestra’s endowment, and a cynical observer might conclude that their ulterior motive in their current assault on the orchestra is to shut it down and repurpose that endowment for something else. If the orchestra’s players resigned en masse to form a new orchestra they would be a startup in every sense of the word– no endowment, no parent organization to pay salaries. They would need a deus ex machina intervention of philanthropy – on the order of tens of millions – in order to start paying salaries, establish an endowment for investing, and to secure agreements with venues (and venues of an appropriate size are limited, nearly non-existent in Atlanta, especially with the imminent closure and redevelopment of the Civic Center and the Fox’s already-full schedule).
    However, the musicians ultimately have the leverage that matters – the music and the talent – and this can’t be downplayed. The WAC doesn’t clearly disclose how it deals with donations, but the loss of ASO-related donors would be a significant cut to its fundraising if the orchestra were to secede, and the ASO’s decision to become independent might highlight the non-profit malfeasance that seems to be going on at WAC and drive away some of the non-ASO donors as well. Add to this Michael Shapiro’s upcoming retirement from the High, just announced today… the WAC really needs to be thinking of how to improve its image.
    Personally my vote is for ‘Atlanta Orchestra’ (like two of the Big Five). But I agree – the WAC would be lost without the ASO and it’s astounding to me that they don’t see that.Report

    Reply
  12. Guest says:

    Kate – I am right there with you! The WAC arguably has the better hand at the moment as they control the orchestra’s endowment, and a cynical observer might conclude that their ulterior motive in their current assault on the orchestra is to shut it down and repurpose that endowment for something else. If the orchestra’s players resigned en masse to form a new orchestra they would be a startup in every sense of the word– no endowment, no parent organization to pay salaries. They would need a deus ex machina intervention of philanthropy – on the order of tens of millions – in order to start paying salaries, establish an endowment for investing, and to secure agreements with venues (and venues of an appropriate size are limited, nearly non-existent in Atlanta, especially with the imminent closure and redevelopment of the Civic Center and the Fox’s already-full schedule).
    However, the musicians ultimately have the leverage that matters – the music and the talent – and this can’t be downplayed. The WAC doesn’t clearly disclose how it deals with donations, but the loss of ASO-related donors would be a significant cut to its fundraising if the orchestra were to secede, and the ASO’s decision to become independent might highlight the non-profit malfeasance that seems to be going on at WAC and drive away some of the non-ASO donors as well. Add to this Michael Shapiro’s upcoming retirement from the High, just announced today… the WAC really needs to be thinking of how to improve its image.
    Personally my vote is for ‘Atlanta Orchestra’ (like two of the Big Five). But I agree – the WAC would be lost without the ASO and it’s astounding to me that they don’t see that.Report

    Reply

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