Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: MONDAY, February 6, 1995 TAG: 9502060022
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
SOURCE: CODY LOWE STAFF WRITER
DATELINE: LYNCHBURG LENGTH: Long
Walking into the Rev. Jerry Falwell's office at Liberty University, you might expect to find images of the two people who last weekend contributed the equivalent of more than $30 million to the university.
Instead, there are two life-size, full-color cutout figures of Bill and Hillary Clinton standing and smiling just behind either of Falwell's shoulders as he sits at his desk.
Falwell laughs as he shows off his ``advisers'' to a visitor. The figures were a joke from a Liberty University staffer following the uproar over Falwell's distribution of a videotape made by Clinton enemies accusing them of everything from adultery to murder.
Contributions flowed into Falwell's ministry from TV viewers who wanted the tape, but that money was a pittance, pennies in a wishing well, compared with the bankroll offered by two friends who might not be seen standing beside the cardboard Clintons, but who are there in spirit.
Daniel Reber and Jimmy Thomas are longtime members of Falwell's Thomas Road Baptist Church and trustees of Liberty University. Between them they have nine children, all of whom have attended Falwell-founded schools since kindergarten. Some have graduated from Liberty, others are in the process.
``Liberty means a lot to us and the city,'' Reber told The Associated Press last week. ``We sincerely believe in what Dr. Falwell has accomplished and what he intends to accomplish.''
Because of that, the two successful businessmen have guided Liberty's financial direction for the past two years. They used personal resources to start a foundation to buy up Liberty's debt and help the university on the road to solvency.
``We mortgaged everything we have - our houses, our small farms, our securities - and wondered most nights how it's going to work,'' Reber said. ``I have nothing I own outright.''
The two self-made millionaires pulled off Liberty's rescue while continuing to run their own business and real-estate concerns.
Reber was also entangled in a complicated lawsuit by his employers at Direct Mail Communications in Forest after they accused him of devoting too much time to Liberty University to the detriment of their company. Reber countersued, and the parties settled out of court in December. Reber and Thomas, who had sold DMC for $2.5 million in 1989, repurchased it for $900,000.
Falwell insists that personal business considerations have nothing to do with the two men's philanthropic relationship to Liberty, however.
Reber and Thomas - any suspicions by cynical outsiders notwithstanding, Falwell says - have ``no ulterior motives, got no side deals'' and ``received no personal remuneration of any kind'' in exchange for their bailout of the university.
In an interview last week, Falwell said legal papers would be filed in the next two to three months absolving the university of almost $40 million in debt. That is a substantial chunk of the more than $100 million in bills accumulated in the 1980s when the university outspent revenues that plummeted in the wake of the Jim Bakker and Jimmy Swaggert televangelism scandals.
Not only are Reber and Thomas forgiving the debt. Falwell said they have made an oral commitment to return all the collateral tied up when the university borrowed the millions of dollars it eventually could not repay. That includes land and buildings worth millions, including the former Old Time Gospel Hour headquarters on Langhorne Road now being leased by Babcock and Wilcox.
``We will come out where we were before, but without any debt,'' Falwell said.
The university is now showing a positive cash flow of more than $17 million a year, Falwell said, being used primarily to service remaining debt.
The university still owes $40 million to various creditors, including Christian Mutual Insurance Co., which holds title to several campus dormitories.
The largest remaining creditor is the group of more than 2,200 holders of bonds issued through Texas-based Trust Management Inc. In a deal worked out in 1992, they are receiving reduced annual payments - escalating twice-yearly installments that currently amount to $870,000 - and are to be paid in full with a final balloon payment of $16 million to $18 million in 1999. Those bondholders also hold the first mortgage on the Liberty property and have agreed not to attempt to foreclose as long as they receive their payments on time.
Falwell said last week that Liberty has prepaid more than a third of the $870,000 payment that is due to those bondholders in March.
Reber and Thomas' actions don't affect the two major creditors - Christian Mutual and the Trust Management bondholders - but Christian Mutual's president said it could be good news for other creditors.
``If indeed the debt has been forgiven, it will be extremely beneficial to the university,'' Fred Potter said.
The remaining debt, Falwell said, is ``very manageable'' and ``all current.''
That seems to be true for all but one of Liberty's creditors, the Coleman-Adams Construction Co. of Lynchburg. Coleman-Adams has a lawsuit pending seeking $1.6 million plus interest. The suit alleges that the company has not received promised payments from Liberty and asks the Lynchburg Circuit Court to enforce mechanics' liens against the university for construction of the school's cafeteria.
Despite that court threat, Falwell is, as always, upbeat about the future of the university, citing record on-campus enrollment of 5,400 this year and record-setting applications for next fall's freshman class.
``We're very excited. We've had a rough ride that last five years. It's nice to be on the other side,'' Falwell said.
Though he and other university supporters are ecstatic over the latest financial windfall for the 24-year-old school, not everyone who was embroiled in the debt controversy is.
One of the creditor groups whose interest was bought up by Reber and Thomas involved 2,500 bondholders who invested in another Texas company, Church & Institutional Facilities Development Corp. That company went belly-up in 1992, in part because bond-sale beneficiaries such as Liberty reneged on repayment. A bankruptcy trustee opted to sell the Liberty loans it held for about 20 percent of their face value of $12 million, meaning the investors lost most of their money.
That included ``mom and pops cashing in their IRA money because their local minister and Falwell's letters said they'd be doing God's work,'' said Doug Hudman, a Texas attorney involved in the case.
``The true victims are the mom-and-pop believers who think their money was going to a good cause,'' he said. ``All it was doing was going to fund Mr. Falwell's continued indebtedness. It's kind of sickening to me.''
Falwell insists the university does not face any ethical dilemma in accepting the debt forgiveness from Reber and Thomas, even though the original bondholders took a substantial loss and the university stands to come out free-and-clear and still holding its collateral.
``When the bankruptcy trustee called in all the [Church & Institutional] notes and put them up for sale, anyone could have bought them,'' Falwell said. ``Reber and Thomas happened to be the ones who bought them. That was fortunate for us.''
The university's original financial restructuring plan announced in the summer of 1992 called for those bondholders to be paid back $10.5 million. The bankruptcy trustee decided that Liberty was unlikely ever to be able to fulfill that obligation, though, and chose to sell the bonds for $2.5 million.
Falwell is insistent, however, that ``we were committed to 100 percent repayment. Those decisions [to sell the bonds at a loss] were made by companies acting on business motives. Liberty never asked anyone to take a discount.''
Reber and Thomas, though, did negotiate a discount with Household Finance Corp. before buying out its debt. Falwell blames Household's $16 million loss on the company's failure to ``check the credit rating on any'' of the participants in the Liberty Home Bible Institute program it provided credit for. Household eventually agreed to a reduced liability, which it sold to Reber and Thomas, and wrote off most of the debt.
Falwell seems more confident than ever in the future of the university he has said will be his legacy.
Now 61, Falwell said he doesn't plan ever to retire, but he has cut back his day-to-day managerial responsibilities, delegating authority to a team of subordinates that now deliberately includes a cadre of men and women age 40 and younger.
Among them are his sons - Jerry Jr. who is the university's in-house legal counsel, and Jonathan, ``who probably one day will be chancellor.''
Staff writer Jan Vertefeuille contributed information for this story.
by CNB