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

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 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:

• 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.