MorrisAnderson Assisting Lenders Restructure Debt Avoiding Publicity
Private Catholic School, Location Midwest
Private Catholic School. 1,200 students. $9 million sales. $50 million debt.
- Donations and returns on investments in endowments had fallen significantly below projections.
- Alumni donor base primarily comprised of relatively small dollar contributors – very few “wealthy name” donors.
- Incurred debt to build/refurbish facilities with plan for continued donations and investments in endowments.
- The Great Recession resulted in a declining enrollment that underachieved projections for operating revenues and donations; the organization was slow to adjust its cost structure.
- $50 million debt was multi-faceted: line of credit, bonds, swap agreement, and letter of credit.
- Defaulted on swap obligation; senior lenders backing a letter of credit decided to not renew.
- A forced change in management team divided alumni/donors into two factions.
- Public awareness of the situation would have a long-lasting negative impact on enrollment.
- Extensive cost cutting and long-term plan for replacement of teaching faculty.
- Assessed five-year cash flow forecast for feasibility.
- Divested idle assets, realigned capex spend to donor-based initiatives.
- Provided assessment of the situation along with options and recommendations for attainable solutions.
- Ensured the board was informed and major donors were actively engaged in exploration of scenarios.
- An out-of-court resolution comprised of replacement financing plus a discrete capital campaign allowed the bank group an acceptable exit.
- All of the core facilities and services continued uninterrupted during this process.
- Avoided public awareness of the situation.
- Enrollment not impacted by the events.