Lyric Opera Hits High Note

The prominent nonprofit Lyric Opera of Chicago received a first-time A1 rating with a stable outlook from Moody’s Investors Service last week. The Lyric has no rated debt at this time, although it does carry $62 million of variable-rate bonds backed by a letter of credit from a bank group that includes Northern Trust Co., Harris NA, and JPMorgan Chase Bank NA. Moody’s analysts attributed the rating level to the Lyric’s prominence as a cultural institution with an excellent history of subscription revenues, renewals, and attendance in addition to strong fundraising. The Lyric’s subscribers usually fill between 70% and 80% of seats with an overall program of eight operas typically at 93% to 103% of capacity. The three-year average of gift revenues in fiscal 2007 was $27 million. “We expect the opera company will continue to attract high-profile board members who will continue to contribute philanthropically to the organization,” Moody’s wrote in its credit report. While national demographics show that opera attendees are usually between 50 and 70, Lyric has succeeded in attracting younger audiences as well. The credit also benefits from strong governance and management, with good disclosure and financial reporting, and a commitment to maintain at least balanced operating performance through establishment of financial reserves to fund future operations. Its financial resource base continues to grow, reachingof $168 million in fiscal 2007, up from $128 million in fiscal 2005. About $123 million of the current total is in unrestricted cash, providing a strong coverage ratio of the Lyric’s outstanding debt of 1.9 times. Its challenges include competition from other cultural institutions and entertainment venues for attendance and philanthropy, and the unionization of its employees that exposes the Lyric to frequent contract negotiation issues, including the potential for a strike that could shut down all or portions of a season. The Lyric narrowly avoided a potential strike that could have brought the curtain down on its opening night this past weekend when officials reached a tentative contract settlement with the American Guild of Musical Artists, which represents many of the Lyric’s performers. The guild previously had authorized a strike, which would have delayed opening night. The Lyric was founded in 1954 and is one of the nation’s most renowned opera companies, attracting international performers, and it conducts an outreach program to broaden students’ exposure to the performing arts. Its longtime home is the Civic Opera Building, the second largest opera auditorium in the country. Lyric does not have any significant capital projects nor debt plans on the horizon. Moody’s wrote that the current variable-rate debt structure does pose some risk as principal on the 1994 bonds is not amortized. “It is the organization’s intent to build resources through investment performance and gifts to provide the resources at the bonds’ maturity,” analysts wrote.