BRADENTON, Fla. — The trustee for Lambuth University on Wednesday notified the bond market that the Jackson, Tenn.-based school filed for Chapter 11 bankruptcy three weeks ago.
Lambuth’s filing for relief in the U.S. Bankruptcy Court for the Western District of Tennessee constitutes a default under the loan agreement, according to the trustee, Bank of New York Mellon.
The university, which has around $5 million of outstanding tax-exempt and taxable debt, ceased academic operations on June 30 and filed for bankruptcy the same day.
Lambuth is a nonprofit, private entity that filed under Chapter 11 on the advice of counsel, said Michael Keeney, the chairman of Lambuth’s Board of Trustees, a partner at Thomason, Hendrix, Harvey, Johnson & Mitchell PLLC, and a Lambuth graduate.
Though there are no more classes, a small number of employees remain at the campus providing administrative services.
Keeney said that utilities were about to be shut off and filing for bankruptcy “prevented that.”
Lambuth owes the Jackson Energy Authority $493,022, the largest of its top 20 unsecured claims, according to the bankruptcy petition.
A hearing is scheduled for Wednesday on a request by Lambuth’s attorney for more time to file required schedules, a statement of financial affairs, and other documents.
A meeting of creditors is scheduled for Aug. 10. Proof of claims is due by Dec. 27.
Attorneys for Bank of New York Mellon and the bond insurer, Radian Asset Assurance Inc., have filed motions to appear in the case.
In the event of default, Radian is entitled to control the enforcement of all rights granted to bondholders or the trustee, including acceleration of bond principal and waiver of events of default, according to the trustee’s notice this week.
The bonds have not been accelerated, the notice said.
The notice also said that the university — according to news reports — has accepted a proposal from a local group comprised of the city of Jackson, the Madison County Commission, the Jackson Energy Authority, and West Tennessee Healthcare to purchase Lambuth’s campus for $7.9 million.
The campus would then be conveyed to Tennessee’s Board of Regents for use by the University of Memphis as a satellite campus.
“Our plan all along was to sell the campus,” Keeney said. “We are working through the bankruptcy process and working toward a sale that would be approved by the court.”
Keeney said the process is somewhat complicated because the local group offering to purchase the campus must receive court approval before the sale is complete. “There are many moving parts,” he added.
It is not clear if the funds available to the university, plus the sale amount, will cover all of Lambuth’s debts.
Some of the bonds traded just a few weeks before Lambuth filed for bankruptcy.
A customer on June 14 bought $20,000 of tax-exempt bonds for 82 cents on the dollar, according to the Municipal Securities Rulemaking Board’s online EMMA system. The same day a customer sold $20,000 for 80 cents on the dollar.
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. About $5 million is outstanding.
The bonds were sold without underlying ratings and were initially insured by Asset Guaranty Insurance Co., now known as Radian.
Radian stopped writing municipal bond insurance policies in 2008 but has said that its policy insuring Lambuth’s bonds remains in force.