Paul L. Caron

Saturday, September 20, 2014

S&P Lowers Thomas Jefferson Law School's Junk Bond Rating to CC (3 Notches Lower Than Venezuela's); Default Is Expected

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:

Thomas Jefferson Logo 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.)

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The solution is obvious: Sue.

Posted by: Sue You | Sep 21, 2014 8:13:09 AM

Ha ha ha! Anyone who lent money to a third-rate law school during the biggest law school bubble in history deserves to lose money.


Posted by: W.C. Varones | Sep 21, 2014 6:03:57 AM

If I'm reading the school's 509 filing correctly, they have an average of over 300 matrics but lost 31% of the 1L class and 10% of the 2L class to transfers, drop outs, and fail outs.

Couple that with a ~50% bar passage rate. That means that of entering 1Ls, about half graduate, and of those half that graduate, only half pass the bar exam. Paradoxically, it makes their employment numbers actually look better, since only half of the graduating class even qualifies for jobs as attorneys due to the horrible bar passage rates.

Overall, though, we have a picture of a very unhealthy institution. Things don't augur well for TJSL.

Posted by: Flharfh | Sep 20, 2014 2:56:59 PM

I bet the dean's salary check is in his bank account.


Posted by: terry malloy | Sep 20, 2014 10:35:26 AM

It's fitting, because I believe both Thomas Jefferson and Simon Bolivar (founder of Venezuela and a half-dozen other Latin American nations) both died in debt. Maybe TJLS can borrow $130 million in GradPLUS loans to cover its bond obligations??? In any event, that edifice looks like it will be some pretty premo Class A Office Space in the future.

Posted by: Unemployed Northeastern | Sep 20, 2014 5:22:46 AM