CHICAGO – The quick ratification of new contracts by orchestras in Atlanta and Chicago after short labor stoppages bolsters the credit of each and casts a favorable light on the sector in general, Moody’s Investors Service said Friday.
The CSO’s contract expired Sept. 17 and musicians staged a brief strike that resulted in the cancellation of a weekend concert before an agreement was reached Sept. 24 and ratified on Sept. 26. Moody’s rates the orchestra A3 with a negative outlook.
Musicians in the ASO also ratified their new contract on Sept. 17 after a lockout that occurred after the expiration of their contract on Aug. 25. The ASO is one of four divisions of the Woodruff Arts Center in midtown Atlanta. The center has about $188.26 million of debt rated A2 by Moody’s with a stable outlook.
“Expediently ratifying the labor contracts is a credit positive for both organizations and reflects favorably on the sector,” Moody’s wrote in its credit outlook. “Though some concessions were made by the organizations, the settlements include expense savings and limitations on salary increases that will help the finances of the organizations as they struggle amidst falling ticket sales, declining endowments, and waning philanthropic support.”
Both orchestras were able to resume operations in time for their new seasons.
The ASO’s new two-year contract will help close the orchestra’s $5 million annual operating deficit through $2.4 million in annual labor cost savings from a 6% reduction in senior staff compensation and a reduction of full-time musician staff from 93 to 88.
Musicians also will begin paying towards their health care benefit plans but will begin receiving a 22% share of any operating surplus. “It’s unlikely that this particular benefit will be realized in the near-term given the organization’s budget situation,” Moody’s said.
According to ASO management, an additional $2.5 million still must be generated to balance the projected budget deficit gap. The orchestra’s accumulated deficit is nearly $20 million. Its annual operating budget is $45 million and annual revenue is approximately $40 million.
In addition to $188.26 million of bonds, the Woodruff Arts Center has $9 million in bank lines of credit and notes, and a $30 million fixed-payer swap with Bank of America NA. The bonds were sold on behalf of the Arts Center by the Development Authority of DeKalb County and the Development Authority of Fulton County.
The CSO has struggled financially with declines in ticket sales at its Symphony Center home keeping revenue growth flat, resulting in an operating loss of nearly $1 million in 2011. The loss came after five years of surpluses including a small $41,000 one a year earlier. The CSO operates on a $64.7 million annual budget and has $145 million of debt. It borrows through the Illinois Finance Authority.
CSO officials attributed their 2011 fiscal challenges to artist cancellations, including five weeks missed by Riccardo Muti during his inaugural season as music director. The CSO raised a record $24.2 million in contributions in 2011 with ticket revenue totaling $20.6 million.
The contract provides operational stability while also containing orchestra costs, Moody’s wrote. Musicians will receive a 4.4% cumulative increase over the next three years but will contribute more for their health care costs. Salaries had risen a cumulative 26.6% over the last five years.
“The expedient ratification of CSO’s impasse reflects positively on management, indicating that they have a constructive relationship with musicians,” Moody’s added. The strike marked the orchestra’s first in more than two decades.