LOS ANGELES — The Windrush School is in bankruptcy and bond default, but the private school in the East Bay suburbs of San Francisco will be allowed to finish out its final school year after working out a settlement with the bond trustee.
Trustee Wells Fargo tried to close the doors a month early, claiming that school administrators had violated an earlier settlement by overspending on administrative salaries.
The school responded by seeking an injunction and a restraining order, and both parties went back to the table last week and worked out a supplement to the settlement allowing the school to remain open through the end of the school year, according to Dana Rosenberg, the school’s director.
“Our fundraising has gone incredibly well,” Rosenberg said. “We were able to fund-raise enough to make it until the end of the year a month ago.”
The 35-year-old school filed for Chapter 11 protection in U.S. Bankruptcy Court in Oakland in September 2011 when it couldn’t reach a forbearance agreement with the holders of $13 million of bonds that were issued in 2007.
The K-8 nonprofit school issued the revenue bonds in 2007 through the California Statewide Communities Development Authority to finance the addition of a middle school, expanding from a K-5 campus.
Windrush’s enrollment dropped to 165 students from a peak of 255, causing it to experience revenue shortfalls after the economic downturn in 2008, the school’s finance director, Enrico Hernandez, told The Bond Buyer in 2011.
During the bankruptcy proceeding, Wells Fargo, the indenture trustee, agreed to a court-approved settlement to allow Windrush to finish the academic year ending in June, provided that Windrush adhered to a line-item budget, according to a court document filed by Mike Buckley, of San Francisco-based Reed Smith LLP, the bank’s attorney, in opposition to the school’s requested injunction.
“Instead of observing the line items, Windrush has treated the settlement like a big pile of cash earmarked for its bloated payroll, and then doled out the leftovers to pay expenses Windrush thought were the priorities at the time,” the document said.
A hearing was slated for Friday so a judge could hear arguments on whether school administrators were in default on the settlement agreement, but the bond trustee asked school officials to return to the negotiating table when a judge agreed to hear arguments, Rosenberg said.
“We did go over in our payroll, but we did not go over the overall amount we were allowed to spend to run the school,” said Rosenberg, the former dean of students, who agreed to assume the role of school director when the former director left last year.
The administrative staff has been whittled down to Rosenberg, Enrico Hernandez, the school’s finance director, and two administrative assistants, she said.
Through the settlement agreement, school administrators were asked to send all the money they gathered through fundraising to the bank, Rosenberg said. The bank then gave back the amount agreed upon to keep the school open through the end of the school year, she said.
“They sent us a letter in April saying we were in default of our budget for the months of December through March,” Rosenberg said. “We have a stipulation in the settlement agreement that we can go over the budget to 110%; also, that we can move from one line item to another. So we filed an injunction with the judge on April 27.”
The two parties reached an agreement on Friday, so the judge didn’t hear arguments, she said.
Wells Fargo has already put the school property on the market. The school will finish out the school year and hand the keys over to the bank on June 30.
“We have started to market the property and are pleased with the level of interest, so far, from other schools interested in the site,” said Alan Elias, senior vice president and head of wholesale banking communications for Wells Fargo.
“As part of the original settlement in January, we gave them the deed to the property,” Rosenberg said. “We knew that we were closing at the end of June and that was the end of the story.”
It’s too early to determine what the ultimate impact to bondholders will be, Elias said, adding, “We won’t know until after the school site is sold.”