BRADENTON, Fla. — A federal bankruptcy judge has allowed Lambuth University to lease its grounds to Tennessee's Board of Regents so that utilities remain on and the University of Memphis can begin offering classes there this fall.
The private university in Jackson, Tenn., shut down in June and filed for Chapter 11 bankruptcy.
The lease initially was opposed by bond insurer Radian Asset Assurance Inc. and bond trustee Bank of New York Mellon, largely because it did not provide for insurance on campus buildings — many of which provide security for Lambuth's taxable and tax-exempt municipal bonds.
Federal Judge G. Harvey Boswell on Aug. 5 approved the $1-a-year lease, providing that campus buildings are insured by Tennessee's risk-management program, and that BNY Mellon and Lambuth University are payable for losses.
BNY Mellon, acting at the direction of Radian, notified bondholders about the lease in a market disclosure last Wednesday.
"The unpaid principal on the bonds is $4.96 million. Interest, attorneys fees, bond trustee fees, and other amounts are also due under the bond documents," Radian said in court filings. There was no breakdown of the amount of additional fees due.
Radian said a principal payment of $370,000 and an interest payment of $153,120 are due on the bonds Sept. 1, and that Lambuth "has not made any such monthly payments since March 2009."
Based on two disclosures to the Municipal Securities Rulemaking Board's EMMA system, and DPC Data — a nationally recognized municipal securities information repository — it is unclear what payments have been made, though the debt service reserve fund may have been depleted.
BNY Mellon said that Lambuth did not remit sufficient funds to make a full payment on Sept. 1, 2009. The notice said funds were drawn from the debt service reserve though not how much. It said that $487,264 remained in reserve.
For the March 2010 payment, the trustee said that an undisclosed amount of reserve funds supplemented the bond payment submitted by Lambuth.
The balance in the debt service reserve fund was $322,867.
The bond payment due Thursday totals $523,120, according to Radian's court papers.
No notices have been filed on EMMA or DPC concerning draws on credit enhancement per Lambuth's continuing disclosure agreement.
Lambuth, a nonprofit Methodist-affiliated university, filed for bankruptcy June 30 in the U.S. Bankruptcy Court for the Western District of Tennessee.
Bankruptcy constitutes a default under the loan agreement, which gives Radian control over the enforcement of all rights and remedies of the bondholders and the trustee, according to notices filed by Bank of New York Mellon.
The Jackson Health, Educational, and Housing Facility Board issued $6.78 million of Series 1995A tax-exempt revenue bonds and $1.7 million of Series B taxable revenue bonds on behalf of Lambuth. The Series A bonds included a $2.49 million term maturity in 2015 and a $2.855 million maturity in 2020. The Series B bonds included a $1.475 million taxable term bond due in 2015.
The bonds had no underlying ratings and initially were insured by Asset Guaranty Insurance Co., now known as Radian, which stopped writing municipal bond insurance policies in 2008.
Radian insured the bonds and the policy is in full force and effect, spokeswoman Emily Riley told The Bond Buyer in May. Riley said it was not the company's policy to publicly disclose additional details.
According to records on EMMA, some of Lambuth's tax-exempt bonds traded just weeks before the university filed for bankruptcy.
On June 14, a customer bought $20,000 of bonds for 82 cents on the dollar at an interest rate of 11.45%.