ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Sunday, November 10, 1996 TAG: 9611110064
SECTION: VIRGINIA PAGE: A-1 EDITION: METRO
DATELINE: LYNCHBURG
SOURCE: CODY LOWE STAFF WRITER
Liberty University faces a Tuesday deadline to come up with $1.1 million in past-due payments to bondholders or face possible foreclosure proceedings on its campus.
Attorneys for the school said Saturday it cannot make that payment without jeopardizing a bank's commitment to lend the school $7.5 million. Liberty has asked bondholders to accept that amount as full payment for what it calculates is $15 million in outstanding bond debt, but a committee representing the bondholders' interests has rejected that offer.
Attorney Scott Street III of Richmond, who represents Liberty, also said he doesn't believe additional action on foreclosure is likely before the bondholders' appraisal of the property is completed. That is likely to be later this month.
But Claude Ferebee, chairman of the bondholders committee, said his group "has not approached the subject of giving [Liberty] any extension of time for any reason."
Though he wouldn't disclose his group's plans for this week, Ferebee reiterated that if no payment is made by Tuesday, "we have the right to accelerate [or demand immediate repayment of the entire bond amount] and foreclose.
"We will do whatever is necessary to maximize the amount of dollars going to the bondholders."
Some bondholders are challenging the committee's rejection of the university's $7.5 million buyout offer and suing individual members of the committee. To complicate the situation further, two wealthy friends of the university and its founder, the Rev. Jerry Falwell, independently have tendered an offer to bondholders of 50 cents on the dollar for their bonds.
A committee representing the approximately 2,000 bondholders served legal notice to the university Oct.11 that it was in default on payments due under a 1992 court agreement. The university has made no payments to the bondholders since October 1995.
The school was given 30 days to pay.
Should the bondholders pursue foreclosure - which would certainly be challenged by the university and some bondholders in court - the Liberty campus and other assets could be auctioned off by a court to satisfy the debt, estimated by the bondholders to be in excess of $20 million.
An appraiser hired by the university has concluded the property is worth between $6 million and $8 million.
The dispute is over bonds issued in the 1980s by the now-defunct Old Time Gospel Hour and used to help fund the rapid expansion of facilities at Liberty.
Old Time's financial underpinning - donations by viewers of Falwell's television ministry - was decimated in the wake of the Jim Bakker and Jimmy Swaggart televangelism scandals of 1987.
In a series of failed maneuvers to refinance that debt, Liberty took ownership of the campus and other property from Old Time Gospel Hour and became responsible for paying back the loans.
By the end of 1990, Liberty was unable to make payments to the bondholders. About a year later, it began formal efforts to restructure all its debt.
That debt load peaked at about $101million, according to Mark DeMoss, spokesman for Liberty and Falwell.
"The bad news is that there has been significant debt," DeMoss said Friday. "The good news is that the debt has been significantly reduced," to about $40million today.
"We think that given the annual income and revenue and the assets [of the university], that is not a precarious position to be in."
In paring down the debt, the university gave up some property to creditors - including its North Campus on U.S. 29, which the current owner has been unable to sell after several years on the market.
The school also was the beneficiary of the largess of the two wealthy friends, Lynchburg businessmen Daniel A. Reber and Jimmy N. Thomas, who offered to buy up the bondholders' debt at half of face value.
In 1994, Reber and Thomas bought $30 million to $40 million worth of debt from Liberty's creditors at a significant discount from its full value. The two men - through their Christian Heritage Foundation in Forest - then forgave the debt, relieving Liberty of the obligation to repay.
It is not clear how many of the bondholders intend to take the men up on their latest offer.
The university has come to terms with most of its creditors over the last five years.
Under a 1993 agreement with the university, the bondholders agreed to reduce the interest rate on the bonds to 6 percent and to accept annual payments designed only to keep pace approximately with that interest until December 2000. At that time, the university would be obligated to pay off the remainder of the debt - originally estimated to still be $20 million.
The bondholders' committee contends the university has made only one payment on time in the four years since the agreement was signed.
The last payment - $144,000 - was made Oct. 11, 1995, about a month behind schedule, according to the bondholders.
The two sides tell slightly different stories about what has happened since.
University attorneys say the bondholders' attorney, Helen Parrish of Charlottesville, suggested that the university seek financing for an offer to buy the bonds at discount.
In February of this year, Liberty attorney Jerry Falwell Jr. of Lynchburg approached Parrish with an offer from the university to buy up all the outstanding bond debt with a payment of $6.5 million.
The committee calculated that amounted to about 36 cents for each dollar of face value, while the university estimated it was about 5 cents more than that. The committee nevertheless agreed to take the offer to the bondholders if Liberty submitted to certain conditions, including bringing its payments up to date.
Liberty said the bank would not agree to that, but raised its offer to $7.5 million, saying that was the maximum that could be borrowed.
The bondholders' committee again agreed to put that proposal before the bondholders, if the university would agree to an audited financial statement and provide a letter from the lender attesting to the offer.
Liberty approved that, but only under a confidentiality agreement under which neither the details of the audit nor the name of the lender could be disclosed to the bondholders.
The bank wanted its name withheld until the deal was completed because it "did not want to get caught up in the controversy surrounding" the issue, Street said.
By April, the committee had rejected those conditions - declining to look at the financial audit - and directed its attorney to deliver a letter of default to Liberty.
Two individual bondholders - L.O. Day and Ray Kuns - then brought suit against the committee members, contending they had breached their fiduciary responsibilities by not presenting the $7.5 million offer to all the bondholders.
Ferebee, a retired Fort Worth, Texas, lawyer, said he will "vigorously defend the suit at my own expense, and I will avail myself of any possible counteractions."
The Liberty case went back before the court, which suggested mediation. The bondholders' committee declined to participate, again citing concerns about secrecy.
It then reinstituted its notification of default.
Both sides contend they have had numerous responses from bondholders about the various options.
Ferebee said the responses he's heard are overwhelmingly negative toward any offers of half the face value of the bonds.
"We have some folks who say they would rather foreclose, then just burn the place to the ground," than do that, he said.
Street, on the other hand, says he has heard mostly pleas to accept the half-price offers.
"Lots of these folks are elderly and would rather have what money they can" than wait for some extended payback option or possibly lose even more in a foreclosure proceeding.
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