OCPAC endures ‘perfect storm’

Executives at the Orange County Performing Arts Center refer to last fiscal year as “the perfect storm,” but management says it has a plan to get the center back on track with no impact on its patrons.

A few weeks ago, the center announced it lost a record-breaking $13 million due to the subprime mortgage crisis.

Even losing a single dollar would have been a record-breaking loss, though, for a nonprofit center accustomed to breaking even or posting a small surplus each year.

The organization’s financial advisors consider the loss a one-time catastrophe.

It was caused by a highly rated insurance policy the center took out to back the more than $200 million in bonds it issued to finance construction of the Renée and Henry Segerstrom Hall and other projects.

The policy cost about $9 million and became completely worthless when its rating plummeted as a result of subprime lending.

This was completely separate from the center’s day-to-day operations, though.

As far as concerts and shows are concerned, the center took in $52,000 more than it spent, which is typical.

On the surface, it would seem impossible to make up for $13 million in debt with surpluses like $50,000 without making deep service cuts, but Chief Financial Officer Brian Finck says this won’t be necessary.

“We don’t have a short-term need to replace that cash flow,” Finck said.

Since the insurance policy was already paid for when it became obsolete, the organization is not going to need to scramble to find millions of dollars.

The process of recouping the lost money will happen more or less organically, with the help of donors, said President Terry Dwyer.

Now that the center’s bond debt is backed by a letter of credit — a virtually no-risk but slightly higher cost alternative to bond insurance — the center can continue paying off its debt without the possibility of another catastrophe, management hopes.

Center officials have already raised $188 million in grants and donations toward paying back the $240 million they issued in bonds, and once the last $52 million can be raised, then the center will no longer have to pay interest on the debt.

This year, that interest alone will cost the center $3.5 million, Finck estimates.

“When we reach a point where that cost goes away, that’s additional surplus that we can use to eradicate the debt,” Finck said.

Still, the center is charting a very conservative course after its major loss.

“We’re not really cutting back on education or performance programs, but we’re tightening our belt as much as possible in the administration and other operations of the center,” Dwyer said.

After a season of new programs like low-cost dance performances and indie rock shows, management is not looking to hire new people or expand its operations this year, Dwyer said.