Moody's Investors Service on Monday affirmed the Chicago Symphony Orchestra's A3 rating, but took away its positive outlook because of a weakening of its financial operations.

The orchestra has $133 million of debt outstanding, including $83 million of adjustable-rate demand revenue bonds outstanding from a 2008 issue supported by a letter of credit, and previous variable-rate issues also supported by letters of credit. The orchestra sells its debt through the Illinois Finance Authority.

"The rating outlook has been revised to stable from positive, reflecting a weakening of operating performance and return to operating deficits, as calculated by Moody's, which we expect will continue in the near term unless CSO is able to significantly increase unrestricted gifts," analysts wrote. "The outlook revision is also driven by CSO's reduced headroom under financial covenants contained in its letters of credit because of investment losses."

The review was done in connection with the orchestra's planned substitution of the LOC on its 2008 bonds. Currently, the bonds are supported by a direct-pay LOC provided by RBS Citizens NA. The CSO plans to swap the LOC with one from U.S. Bank NA.

Strengths include prominence as a cultural institutional and flexibility provided by a healthy liquidity profile as compared with debt and annual operating expenses. Officials report total investments of $173 million. The orchestra consistently is a strong fundraiser with annual gift revenue averaging $27.6 million. Performance revenue also was on the rise recently, though ticket revenue was down in fiscal 2009.

Its challenges include weakening operating performance that resulted in a 5.5% operating deficit in fiscal 2008 and another deficit in 2009, although management has cut expenses. The CSO also has an aggressive debt structure with nearly 100% of debt in a variable-rate mode and backed by LOCs that include covenants, which if breached, could result in accelerated repayment or a demand for immediate repayment. The orchestra is highly reliant on gifts, for 31.3%, and investment income, for 22.3%, to fund operations. It recently reported a preliminary investment return of negative 16% for fiscal 2009.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.