Press release, Thomas Jefferson School of Law Announces Debt Restructuring:
The Thomas Jefferson School of Law has signed a Restructuring Support Agreement (RSA) with nearly 90 percent of its bondholders that reduces its debt by two thirds ($87 million), reduces annual cash flow obligations by half ($6 million) and ensures continued operations of the school in its state-of-the-art campus in downtown San Diego.
Thomas F. Guernsey, president and dean who was recruited in July 2013 to turn around school operations, said the restructuring agreement was needed to address the $127 million in bonds that were issued in 2008 to build its new campus at 1155 Island Ave.
“This restructuring is a major step toward achieving our goals,” Guernsey said. “It puts the school on a solid financial footing and will enable Thomas Jefferson to continue to fulfill its mission serving a diverse group of students in a collegial, supportive learning environment.”
As part of the transaction, the bonds will be cancelled. In exchange, the bondholders will become owners of the building and lease it back to the school. In addition, the bondholders will also receive $40 million in new notes at an interest rate of 2 percent. Interest rates on the previous outstanding taxable bonds were over 11 percent, with non-taxable bonds at over 7 percent.
The agreement cuts the school’s debt by nearly $87 million, from $127 million to $40 million, and results in a significant improvement in cash flow. Previously, the school was paying about $12 million a year in principal and interest on its debt. Under the restructuring, the school will pay $5 million in annual rent and about $1 million a year in interest expense, cutting its annual payments to the bondholders by almost 50 percent to a total of $6 million.
Guernsey said school operations continue unchanged under the new agreement. The bondholders have expressed confidence in the school and its future plans. ...
“The improved financial stability enables us to continue to focus on improving results for our students in passing the bar and securing jobs in the legal profession,” Guernsey said. “This includes adding new programs and improving core curriculum. By restructuring the debt and reducing the annual payments to the bondholders by almost 50 percent, the school can continue its mission to be a school of opportunity for a diverse population of students. Our long-term goal is to continue doing a better job for our students in all ways and steadily raise the reputation of the law school, the quality of the education and, the success of our graduates.”
Prior TaxProf Blog coverage:
Update: National Jurist, Thomas Jefferson Sells Building, Claims Solid Financial Footing:
The school will pay $5 million a year in rent for the building, which is based on market rate, roughly $2.30 per square foot. The school has a three-year lease that could be renewed up to ten years. ... The law school was paying about $12 million in principal interest and debt a year. It will now pay $6 million a year in rent and interest. ...
“The faculty went through a lot of uncertainty in the past year,” Guernsey said. “Morality [sic] is incredibly high given the circumstances. And staff has stepped up as well.” He said faculty have volunteered to teach additional courses for no extra money, and the faculty revamped the curriculum to better prepare students for the bar exam. “It is a faculty that has simply stepped up [to the challenge],” he said. ...
“The building put us in a position where it was difficult to respond to other issues,” he said. “Now that we have dealt with this, we can focus all resources on declining enrollment, the lousy job market and preparing our students for the new legal world.” He said the school has no plans to increase enrollment to its previous numbers. Last fall it enrolled 264 first-year students, down from 348 in 2010. “We are going to adapt ourselves to what is the new reality and we are going to reconfigure ourselves to be a stronger and smaller law school,” he said.