BRADENTON, Fla. — Three suburban Atlanta charter schools that defaulted on $18.93 million of uninsured bonds have proposed a settlement with investors that is expected to result in a loss.
The amount of the loss will not be known until property bought with bond proceeds is sold at public auction on Feb. 5.
On Wednesday, the Fulton Science Academy, Fulton Educational Services and Fulton Sunshine Academy filed a proposed consent judgment with bond trustee Wells Fargo Bank NA, which had filed a federal suit against the schools in December for breach of contract.
The schools admitted that they are liable for the remaining $9.9 million of outstanding principal on the bonds, plus unpaid interest and attorney’s fees, according to the filing.
The admission of liability sets the stage for a workout plan, approved by investors holding a majority of the bonds, which will allow the auction to proceed, according to a master settlement agreement described in a notice filed on the Municipal Securities Rulemaking Board’s EMMA disclosure website.
“The consent judgment is part of a settlement process, the terms of which are outlined in a settlement agreement between the schools and Wells Fargo dated Dec. 7, 2012,” said Mitchell Bagwell, an attorney with Foltz Martin Hudson & Knapp LLC, which represents the charter schools.
“The schools are released from further liability under the terms of the settlement agreement,” he said.
According to the settlement, a benefactor of the charter schools is providing $3.65 million to support a bid on the property. The $3.65 million represents fair-market value of the land from a recent appraisal.
While the schools hope to have the highest bid to retain title to the property, the sale on Feb. 5 by the Fulton County Sheriff’s Office is a public auction. It is not clear what the schools intend to do with the property.
“The schools are happy to have reached a settlement with Wells Fargo, and pleased to be moving forward,” Bagwell said.
The Development Authority of Alpharetta, Ga., sold the bonds in late 2011 to acquire 44 acres and build a 100,000-square foot facility to co-locate the elementary, middle and high schools. The site had been cleared and about one-third of the building foundation was built by the time work stopped.
The trustee declared the bonds in default last May because the schools failed to disclose ongoing problems with the renewal of Fulton Science Academy’s middle school charter.
Maintaining all three charter schools was required in bond documents because pass-through funds from the school board tied to student enrollment secured the bonds.
Ultimately, the middle school charter was not renewed by the Fulton County School Board because of operational and financial questions. The middle school is expected to reopen as a private school, according to Bagwell.
In December, the school board also voted to terminate the high school charter for Fulton Educational Services. Bagwell said the decision will be contested through the state, and it is expected that both the elementary and high schools will maintain their charters.
Last June, Wells Fargo distributed money in the project fund to bondholders, allocating $9.2 million to principal and $265,000 to interest. The majority of bondholders later directed the trustee to distribute $312,531 to pay interest due through Dec. 31.
The remaining principal balance is $9.9 million, and about $2.27 million remains in various project accounts.
The trustee will provide notice to bondholders after the auction detailing the amount recovered in the sale, and when a distribution on the bonds will occur, according to a Jan. 3 market notice filed by Wells Fargo.