Symphony Is Declared in Default of Loan for Hall’s Renovation

The San Diego Symphony Assn., amid a desperate fund-raising campaign to avoid a self-imposed bankruptcy deadline of March 10, on Tuesday was declared in default of its construction loan for the renovation of Symphony Hall.

A consortium of four banks, led by Bank of America, froze about $700,000 remaining in a $4.5-million loan fund that the symphony used to renovate the 68,000-square-foot, three-story downtown building--the old Fox Theatre, home of the symphony since November.

The default was automatically triggered under the symphony’s agreement with the banks when the nonprofit association failed to meet the payroll last week for its 90 orchestra members and 28 administrative employees.

“I see nothing wrong or counterproductive with what (the banks) are doing,” symphony general manager Richard Bass said. “They’re making sure that whatever (money we make) doesn’t get dissipated.”

Symphony officials Tuesday said they were “pretty encouraged” about the chances of avoiding bankruptcy, although some symphony sources acknowledge that some developments, such as the defaulted loan, may hurt, not aid, the money-raising effort.

The group is still $600,000 to $700,000 shy of raising the $2 million needed to retire its long-term debt, officials said.

Paying the annual interest on that debt--estimated at $250,000--has pushed the symphony to the brink of insolvency.

The association has been unable to pay the cost of the debt through current operations, said one board member, and has used money from future subscriptions to pay the interest.

So “instead of getting interest on these renewals, we’re using them to pay off the debt,” the board member said.

The symphony raised nearly $4.8 million in a 10-month period last year, slightly less than $2 million in cash and the rest in pledges--an impressive fund-raising effort but one that fell short of its $6.5-million goal.

A major disappointment to symphony officials was their inability to secure a $3-million “naming grant” that would have spelled success for the campaign. The donor would have Symphony Hall named for him or her.

The $6.5-million capital campaign left little room for failure. The targeted funds were to be used to renovate the Fox and retire some of the symphony’s debt. Raising anything less than the goal was sure to spark the financial woes now plaguing the association, symphony sources said Tuesday.

The symphony did not emphasize that aspect during its ambitious communitywide fund-raising drive last year. Two references were made to money problems in the symphony’s financial prospectus given last year to major donors.

The first was a balance-sheet item showing a $1.2-million “fund deficit”--meaning that liabilities exceeded assets by that amount. The second was a note--on page 21 of a 23-page document--acknowledging that the symphony’s operations hinged on its ability to generate sufficient cash flow and meet its obligations.

The symphony “contemplates revenues exceeding expenses, although meeting this plan is subject to various uncertainties,” the prospectus said.

The prospectus reflects the symphony’s financial condition as of Aug. 31, 1984. Since then, its financial problems have escalated.

Blaine Quick, the symphony board member who masterminded the acquisition of Symphony Hall, denied that the public was misled into believing that the orchestra was fiscally sound. “The finances of the symphony are public information,” he said.

The current financial problems are “pure and simple: the budget projections fell $2 million short of contributed income,” said Bruce Walton, general manager of KIFM radio and special events vice president of the symphony, a volunteer position. “The income didn’t happen; that’s nobody’s fault.”

How bleakly symphony fund-raisers should have painted the association’s financial picture has been an issue for some time among board members and officers. But the debate heated up about six weeks ago, after a string of scrambles to meet the symphony’s payroll, estimated at more than $400,000 a month, sources said Tuesday.

The board ordered a 10% across-the-board pay cut but was unable even to meet the reduced payroll. That prompted last week’s last-ditch fund-raising appeal, with bankruptcy and a likely receivership to manage the troubled organization the alternative.

The issue of how open officials should have been about the symphony’s dire straits was “not an ethical question” but a fund-raising question, Walton said. “Do you say, ‘We have a great thing, please give us money’? Or do you say, ‘We’re on the verge of bankruptcy, and unless something happens quickly it will be over’?”

The default clause in the construction loan linked to meeting the payroll reflected the banking consortium’s concern that if the symphony was not “making payroll, then there were other problems that existed,” one banking executive involved in the consortium said.

The executive described the default proviso as “not unusual . . . for a loan of that size.”

Bank of America contributed $1.8 million to the loan fund, Great American First Savings Bank and Home Federal Savings & Loan Assn. each participated with $1.125 million, and San Diego National Bank had a $450,000 involvement, sources familiar with the consortium said. The loan was secured by $4.75 million in pledges secured last year by the symphony and by a first trust deed on Symphony Hall.

In other developments, two building contractors have imposed mechanics’ liens against the 2,200-seat Symphony Hall, association officials confirmed Tuesday.

Nielsen Construction Co., the general contractor, filed a lien for the last $888,000 payment on its nearly $4-million contract. And University Mechanical & Engineering filed a lien for $150,000. (University’s lien is included in the Nielsen lien, according to Cheryl Livingstone, Symphony Hall project manager.)

The liens were filed “to protect the rights” of the contractors, Livingstone said. “It’s a prudent thing to do” in light of the possibility that the symphony will file for Chapter 11 reorganization bankruptcy on Monday, she added.

The construction funds were not used for symphony operations, said Livingstone, with the exception of payment of some utility bills. The original agreement with the bank consortium did allow for some operating expenses to be paid by the construction fund. The total permitted was “in the mid-five-figure range,” according to Bass.

Board members Tuesday seemed optimistic and philosophical about the symphony’s chances of avoiding bankruptcy.

Some, however, were somber.

“My concern,” said one, “is that maybe the community just cannot support something of this magnitude. A city only has so much discretionary charitable dollars out there. I don’t know what that number is, but maybe we’re finding that our projections were too high.”