Saturday, September 20, 2014
Following up on Wednesday's post, Thomas Jefferson Law School Defaults on $133m of Junk Bonds, Hopes to Restructure Debt and Remain Open: Standard & Poor's, Thomas Jefferson School of Law, CA Rating Lowered To 'CC' From 'B+', On Watch Neg; Failure To Make Loan Payments Cited:
Standard & Poor's Ratings Services lowered its long-term rating to 'CC' ["default imminent with little prospect for recovery"] from 'B+' [highly speculative"] on the California Statewide Communities Development Authority's series 2008A tax-exempt revenue bonds and series 2008B taxable revenue bonds issued for Thomas Jefferson School of Law (TJSL). At the same time, Standard & Poor's placed the rating on CreditWatch with negative implications.
"The rating action reflects our view of TJSL's failure to make payments in full to the trustee of its June 26 loan payment, which secures the series 2008 bonds, and our anticipation that it will not make its Sept. 26 loan payment in full either," said Standard & Poor's credit analyst Carlotta Mills. We understand the school has made partial payments toward debt service, though we were unable to confirm from the trustee or the school if the debt service reserve has been drawn upon to pay bondholders.
"The CreditWatch designation reflects our understanding that the school has had multiple forbearance agreements with its bondholders and that it is working toward a restructuring of the debt, due to be in place by Oct. 17," continued Ms. Mills. We expect that the bonds will default once the restructuring is completed.
In addition, the school failed to meet two financial covenants (unrestricted resources to debt and unrestricted resources to operating revenue) in fiscal 2013 and does not anticipate doing so until fiscal 2018 and fiscal 2019, respectively. It is our understanding that bondholders granted waivers for the fiscal 2012 and fiscal 2013 covenant violations on Oct. 1, 2013.
(Hat Tip: Don DeBenedictis.)