BRADENTON, Fla. — The last student graduated from Lambuth University in Jackson, Tenn., on April 30.
The 168-year-old institution, affiliated with the Methodist Church, plans to close its doors on June 30.
Some of the university’s bondholders may not be aware that Lambuth is shutting down after encountering financial problems the last few years and losing its accreditation in early December.
The accreditation — necessary for 70% of the school’s 456 students to receive state and federal financial aid — was temporarily reinstated by a federal judge on Feb. 24, enabling Lambuth to wind down operations next month.
Though around $5 million of outstanding bonds are insured, and officials say they plan to pay their debts, no annual financial documents or disclosures about the university closing were posted as of Wednesday on the Municipal Securities Rulemaking Board’s EMMA website, which began collecting such information July 1, 2009. The most recent financial filing on Bloomberg LP was in 2007.
Some of the outstanding bonds traded as recently as Feb. 23, according to EMMA.
“They aren’t living up to their [continuing disclosure] agreement,” said Robert Doty, the president of American Governmental Financial Services Co. in Sacramento. “The bonds are not supposed to be trading without information.”
Bank of New York Mellon, Lambuth’s bond trustee and disclosure agent, said a notice would be posted “shortly, with an update on the situation.”
“Although the closure of the school on June 30 will constitute an event of default under the loan agreement, the closure will not cause an event of default under the indenture, nor require a notice to bondholders, unless the bond insurer accelerates the loan agreement,” the bank said in a statement.
Lambuth president Bill Seymour referred questions about the university’s bonds and plans for dealing with the outstanding debt to his chief financial officer, Joey Stoner, who did not respond to a request for comment.
The small university has struggled financially for some time, acknowledged Memphis attorney Michael Keeney, a Lambuth graduate and chairman of its board of trustees the last three years.
“We have been attempting to rectify our financial problems for a few years, and it reached a point where the responsible thing was to announce closure and deal with our debts,” he said. “Our goal is to get our debts paid, and that includes our bond debt.”
Keeney did not know why financial documents had not been filed on EMMA. He said the problem might have been due to personnel turnover.
“We have been in constant contact with the bond insurer,” he said. All financial documents have been provided to the insurer, he added.
The Jackson Health, Educational and Housing Facility Board was the conduit issuer for Lambuth’s $6.78 million of Series 1995A tax-exempt revenue bonds and its $1.7 million of Series B taxable revenue bonds.
The bonds were sold without underlying ratings and were initially insured by Asset Guaranty Insurance Co., now known as Radian Asset Assurance Inc. Radian stopped writing municipal bond insurance policies in 2008.
“Radian did insure those bonds and our policy is in full force and effect,” spokeswoman Emily Riley said Wednesday. She said it is not the company’s policy to disclose how much of the insured debt is outstanding.
The 1995 deal included serial bonds that have since matured, and some term bonds that remain outstanding.
In the initial offering, the Series A bonds included a $2.49 million term maturity due in 2015 and a $2.855 million maturity due in 2020. The Series B bonds included a $1.475 million taxable term bond maturing in 2015.
In 2009 and 2010, notices about draws on reserves to make debt service payments were filed on EMMA for some, but not all, of the three term bonds.
While the university’s current audits are not available on EMMA, court documents provide a glimpse of its financial problems beginning in 2008, and accreditation problems that surfaced in June 2009 when it was placed on probation by the Southern Association of Colleges and Schools Commission on Colleges Inc., known as SACs.
The association withdrew its accreditation on Dec. 6. Lambuth appealed but the group upheld its ruling on Feb. 23.
On Feb. 24, Lambuth filed suit in the Northern District of Georgia and a federal judge granted a preliminary injunction blocking SACs from withdrawing its accreditation.
On April 14, the university’s board of trustees voted to close Lambuth and to begin making arrangements for students to transfer to other accredited institutions.
According to the Feb. 24 lawsuit, the school’s struggles began in 2008 when top officials at the university stepped down, including the president, CFO, and vice president of academic affairs.
Lambuth had negative unrestricted net assets of $4.2 million in fiscal 2008, $3.6 million in 2009, and $1 million in 2010, according to the suit.
As a result of budget cuts and other strategies to improve finances, “Lambuth also assessed ways to improve financial controls and took meaningful steps to reduce unauthorized financial transactions,” Seymour said in an affidavit filed with the court. No other details were provided about the unauthorized transactions.
The loss of accreditation caused several potential partnerships with investors to fall through, according to the university president.
“Lambuth had a letter of intent with one educational investment group that would have resulted in an infusion of $14 million into the university’s academic programs and would have restructured debt under more favorable conditions,” his affidavit said.
In addition to the suit against SACs, federal court records show that Lambuth is being pursued by at least one creditor.
In February, Hobson Inc., an Ohio company that licenses software to facilitate college recruiting and admissions, filed suit in the U.S Southern District of Ohio.
Hobson’s suit alleges that the university has owed it $218,636 since the fall of 2009.
Local officials reportedly are discussing avenues to assist the ailing Lambuth in paying its bills, which amount to just over $10 million, including the bond debt.
Currently, the goal is for the campus to become part of the University of Memphis, a state university. Tennessee Gov. Bill Haslam has included funds in the state budget for the first year of operations if that occurs.
Keeney said it will be difficult to see his alma mater gone.
“I’m a proud graduate and the lessons I learned at the school have formed who I am today,” he said.
