BRADENTON, Fla. — Lambuth University in Jackson, Tenn., closed down academic operations Thursday while administrative offices remained open and negotiations continued with various parties for the payment of debts, including outstanding bonds.
The Methodist-affiliated university has not made it known to bondholders through an official market disclosure that it is closing. While the trustee representing bondholders said such a disclosure was not legally required, one market participant noted the bonds are still trading and may be sold to uninformed investors.
Lambuth has $5.3 million of outstanding taxable and tax-exempt debt, which was sold in 1995 by the Jackson Health, Educational and Housing Facility Board.
The bonds are insured by Radian Asset Assurance Inc., which said in May that its policy is “in full force and effect.”
“Our attorneys are in contact with bondholders through Radian to negotiate bond payoff,” Michael Keeney, the chairman of Lambuth’s Board of Trustees, said late Monday.
Talks with various parties, including the city of Jackson, to pay some or all of Lambuth’s debt were still taking place, Keeney said, adding, “We are close to a deal.”
The Bank of New York Mellon is Lambuth’s bond trustee and disclosure agent. A trustee posts market notices at the direction of the issuer or voluntarily.
“As indenture trustee, we provided an update directly to the bondholders at the end of May,” the trustee said in a statement Tuesday when asked why information about the closure has not appeared on the Municipal Securities Rulemaking Board’s EMMA website.
“As previously stated, although the failure of the university to continue academic operations beyond June 30, 2011, would cause an event of default under the loan agreement, the closure would not cause an event of default under the indenture, nor require a notice to bondholders, unless the bond insurer exercises their right to accelerate.”
Several aspects of the situation are troubling, the market participant said, including the fact that bondholders have non-public information and can sell their bonds to unsuspecting investors as the bonds continue to trade.
“This underscores fundamental problems with the lack of [Securities and Exchange Commission] authority over issuers and with dealer violations in trading transactions,” said the participant, who asked not to be named.
Lambuth’s bonds are still trading, according to EMMA.
The most recent trade was June 14, when a customer bought $20,000 of bonds maturing in 2015 for 82 cents on the dollar at a yield of 11.45%.
A customer on May 26 bought $65,000 of bonds maturing in 2020 for 63 cents on the dollar at a yield of 12.77%.
If the local consortium is successful in paying off Lambuth’s debts, it is hoped that the campus will become part of the University of Memphis. Tennessee Gov. Bill Haslam has included funds in the state budget for the first year of operations if that occurs.
