ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Tuesday, November 12, 1996 TAG: 9611120105
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
DATELINE: CODY LOWE STAFF WRITER
THE UNIVERSITY made an overdue payment Monday to creditors who threatened to get their money by forcing the college to sell its campus.
Liberty University announced it was "reluctantly" making a $1.1 million payment to a group of bondholders Monday, averting a threat to foreclose on the school's Lynchburg campus.
"I'm pleased they are curing the default," said Claude Ferebee, a retired Fort Worth, Texas, lawyer who sits on a committee that represents the bondholders' interests. "That's all we've asked for."
The university contends it delayed its payment only to give bondholders adequate time to consider a buyout offer from the university - and so as not to jeopardize a loan commitment to pay for that, said Mark DeMoss, a spokesman for Liberty and its founder and chancellor, the Rev. Jerry Falwell.
Though Falwell continued to get counsel to withhold the payment, "ultimately, he felt that this might be a strong show of good faith and interest in resolving the whole matter," DeMoss said. "Hopefully, the payment will enhance the negotiating process and move the whole matter closer to resolution. Obviously, this needed some more time, and the payment provides time."
"We will continue to pursue options for a buyout offer," DeMoss said.
"Any time Liberty has a proposal, certainly our committee will consider that proposal," Ferebee said. "In the meantime, I and the other committee members will defend ourselves against the lawsuits filed against us."
Some bondholders recently sued Ferebee and other members of the committee, accusing them of "breaching their fiduciary responsibilities" by rejecting an offer by Liberty to buy up all the outstanding bond debt for $7.5 million.
In a letter to bondholders, the committee said it based its rejection of the offer on several factors, including a requirement to keep some financial information disclosed to it confidential.
University lawyer Scott Street III of Richmond said the school would have been willing to reveal whatever information a court decided was appropriate to the bondholders.
Besides the Liberty offer, two Bedford County businessmen who are friends of Falwell have mailed each bondholder an offer to buy their bonds for half of face value. The number of bondholders who have responded to that offer - which was made privately and independently of the university - has not been released.
The university calculates the total debt is about $15 million, while the bondholders figure it is about $20 million.
The debt was incurred by Old Time Gospel Hour Inc. during the 1980s to pay for the rapid expansion of the Liberty campus.
The debt became unmanageable after the televangelism scandals of 1987 involving Jim Bakker and Jimmy Swaggart shrank the financial contributions to virtually all TV ministries, including Falwell's Old Time Gospel Hour.
As part of a plan to restructure that branch of the ministry, Liberty University took over ownership of its property from Old Time and assumed its debt, anticipating finding long-term financing to pay it off.
When that fell through, the university renegotiated with its various creditors for extensions, reduced payoffs and other methods of reducing its debt.
In 1993, an agreement with the approximately 2,000 holders of about $20 million worth of bonds called for a reduced payment plan through the year 2000. At that time, the university would face a balloon payment, originally estimated at between $18 and $20 million.
Recently, the university secured a commitment from a bank for a loan of $7.5 million, which it offered to the bondholders as a discounted payoff for the entire debt.
An appraisal commissioned by Liberty found that the campus would be worth only $6 million to $8 million on the open market, despite the fact that it represents investments of almost $200 million over its 25-year history.
The bondholders' committee on which Ferebee sits, suspended the due date voluntarily - but temporarily - for Liberty's payment in the spring of this year as negotiations continued.
The committee eventually declined the payoff offer, and a court's recommendation for a mediator to enter the dispute.
In October, the committee filed a notice of default with the university, giving it 30 days to bring its payments up to date.
The university, meanwhile, was hearing from bondholders who were suing the committee members for not bringing the $7.5 million buyout offer to all the bondholders for consideration.
The university was counseled by its attorneys to hold back its spring payment while that dispute continued, and in anticipation of a bondholder-sponsored appraisal of the Liberty property.
Now that foreclosure has been forestalled, "it looks like we're going back to square one," Street said.
"I hope that the bondholders' committees will continue to explore ways to help Liberty quickly get as much money to the bondholders as possible."
Ferebee said the completion of the bondholders' appraisal "will give us some guidance for the future as we continue to negotiate with the university."
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