(Bloomberg) -- Spring Hill College, the oldest Catholic educational institution in the southeast of the US, has struck a deal with its biggest creditor Nuveen that gives it more time to shore up its finances and overcome a default.
The Mobile, Alabama-based college entered into what’s known as a forbearance agreement with UMB Bank — the trustee for bondholders like Nuveen — after breaching a covenant, according to an Oct. 1 regulatory filing.
As part of such agreements, bondholders can agree to hold off on steps like lawsuits to give distressed borrowers more time to right their finances.
The college sold about $60 million of unrated muni bonds in 2015. While it hasn’t missed a bond payment, it failed to meet a required debt service coverage ratio — a measure of cash flow compared to debt obligations — that it had agreed to when it borrowed money. It also tapped its revolving loan facility for more than $5 million. The trustee said all that triggered a technical default.
Under its deal with Nuveen, Spring Hill is required to raise $2 million in donations by July 31 — which it did — and $5 million by Oct. 31. The college was also required to have at least 240 full-time, first-time students as of Aug. 19, a threshold it met.
“Spring Hill College is on track to meet this donation milestone with no issues,” Brian Courtney, chief financial officer for the college, said via email. Donations have come from alumni, donors, and some local sources, he said. The city and county are contributing $1.5 million for a new health and science innovation center, the college announced in August.
A representative for UMB Bank declined to comment while one for Nuveen didn’t respond to requests for comments.
Courtney added that the college is evaluating its options regarding the sale of non-core real estate, and is pursing other income sources and partnerships. Under the forbearance agreement, it can’t take on additional debt without permission of bondholders.
Spring Hill, known for receiving praise from Martin Luther King, Jr. as part of his famous “Letter from a Birmingham Jail”, was founded in 1830. It has nearly $50 million of muni debt outstanding, according to data compiled by Bloomberg, most of which Nuveen owns.
--With assistance from Sue Lucas.
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