Funds would help settle $15 million in debt with bondholders, local banks; includes $400,000 for Judson College Foundation, which now owns campus
Attorneys representing the Judson College Board of Trustees filed an action in Perry County Circuit Civil Court on Tuesday, July 11, seeking access to over $7 million in restricted endowment funds given to benefit the college. The action has been assigned to Circuit Judge Collins Pettway.
The filing sheds new light on the financial circumstances that preceded Judson’s closure, and on the Board’s plans for the future of Judson’s endowment, campus, and legacy. The Board voted to end Judson College’s educational operations in 2021 after nearly two centuries of educating women in Alabama’s Black Belt, citing dwindling enrollment and insurmountable financial difficulties.
The document is signed jointly by Robert Turner, Sr., of Marion, William Pompey of Camden, and Ethan Tidmore and Wood Herren of the firm of Bradley Arant Boult Cummings in Birmingham, all acting as attorneys for Judson College.
The $7 million in endowment funds consists of gifts given to the College over the years, including bequests made in estates. The money often translated to endowments for scholarships and other specific purposes intended to support the college. The use of these funds, the filing says, is often restricted in one or more ways: only interest can be spent, not principal, for example, or only to fund certain scholarships. Most of the funds’ donors, Judson says, are now deceased or otherwise cannot be consulted on the matter.
Judson’s attorneys argue that, under Alabama law, institutions may appeal to the court to modify restrictions on such gifts when the donors’ intended purposes become “impracticable, impossible to achieve, wasteful, [and] because of circumstances not anticipated by the donor, a modification of a restriction will further the purposes of the fund,” quoting Ala. Code § 19-3C-6(c). Winding down the school’s financial obligations, the board’s attorneys say, would further the donors’ intended purposes in supporting the overall mission of Judson.
The filing lays out the financial circumstances that preceded the closure of Judson as an educational institution in 2021. In 2010, the school partnered with the City of Marion to raise a significant amount of funds, both for the purpose of retiring old debt and to implement capital improvements, according to the document. The City created an Educational Building Authority, through which Judson was able to secure $11,230,000.00 in the form of a bond issuance. Regions Bank facilitated that bond and acts as the bondholders’ trustee.
That bond agreement stipulates that “in the event that the [College’s] Student Fees shall be insufficient to make any payment of principal or interest that shall come due with respect to the [Bonds], then the College shall make any such payments from its General Endowment or from any other funds of the College that will be available for that purpose.”
The filing says Judson still owes $9,030,000, plus interest, fees, and costs, from that October 2010 bond issuance.
Judson also owes approximately $5,230,925.00 to local banks, according to the filing. The document further breaks down that debt as follows:
“Two separate promissory notes dated May 15, 2019, and June 15, 2020, respectively, made by the College to the order of Marion Bank, as the same has been modified from time to time thereafter, on which there is an outstanding principal balance of $2,534,484.30, plus accrued interest, fees, and costs (including attorneys’ fees).”
“An unsecured line of credit agreement made by the College to the order of [First Cahawba Bank], as the same has been modified from time to time thereafter, on which there is an outstanding principal balance of $921,790.47, plus accrued interest, fees, and costs (including attorneys’ fees)”
“A promissory note dated February 12, 2021, made by the College to the order of West Alabama Bank, as the same has been modified from time to time thereafter, on which there is an outstanding principal balance of $1,610,207.19, plus accrued interest, fees, and costs (including attorneys’ fees).”
Judson, according the filing, “experienced a significant enrollment decline and numerous financial setbacks,” in recent years. These setbacks were exacerbated by the onset of the COVID-19 pandemic in 2020. It was in the midst of the pandemic that Judson first put out the announcement that it was in serious financial trouble. The toll COVID took on enrollment was swift and significant.
Between the initial announcement that the school was in danger of closing and the board’s final vote to do so, the school’s enrollment reportedly dropped from an already-low 145 to only 12 students.
Some financial relief did come during the pandemic. The school obtained over $1.5 million in the form of two PPP loans, one for $818,000.00, approved April 10, 2020 and forgiven Nov. 17 that same year, and another for $780,739.00, approved Jan. 16, 2021 and forgiven July 23 of that year. That money, along with at least $2.5 million in donations and pledges raised in late 2020 and early 2021 as the school put out a desperate call for funding to stay open, was not mentioned in the document filed in court this week.
The filing says Judson’s board approved a settlement agreement on April 6 of this year with the banks and bondholders. It notes that the settlement, if it gets final approval from the court, would put an end to lawsuits against Judson filed by the local banks, by Regions Bank as indenture trustee of the bond, and by the bondholders themselves.
It identifies 38 restricted gifts in Judson’s endowment totaling $7,331,412.25. A detailed list of those gifts was filed under seal in conjunction with this action.
The settlement agreement proposes that the entire restricted endowment be liquidated, and most of it applied toward the school’s debts or to other wind-down costs.
It also proposes to set aside $400,000.00 to be given to the Judson College Foundation. That nonprofit foundation now owns the college’s former campus, after being gifted it by the school’s Board in the leadup to the finalization of the settlement agreement Judson is now asking the court to approve.
The filing also acknowledges that it will be “necessary” for Judson to seek Chapter 11 bankruptcy protection in the course of settling its debts. Judson leadership, including President Daphne Robinson, had held back on discussing bankruptcy as an option in the wake of the college’s closure.
Some have speculated that the fate of the school’s campus, a significant part of Marion’s historic greater downtown district, played a part in the board’s slow approach to bankruptcy. With the campus property now in the hands of the Foundation, it would be spared from any bankruptcy proceedings that might require liquidation of significant assets.
The filing makes note of the Judson campus’s significance to Marion and the Board’s desire to have the campus continue to house, ideally, some sort of future educational institution, or, failing that, “a non-educational activity that will further commerce in and provide employment and other benefits for the Marion, Alabama community.”
The $400,000.00 appropriation to the Foundation, Judson attorneys say, will help to pay for the upkeep of the campus while a suitable new occupant is found.
The Alabama law under which Judson’s attorneys are seeking to modify the restricted funds stipulates that the state’s Attorney General must be notified and given the opportunity to weigh in whenever the law is invoked. As such, Attorney General Steve Marshall’s office was served with a copy of the application when it was filed in court. Marshall’s office has not yet released any public comment or make any filing regarding the matter.
Judson’s attorneys have asked the court to grant a declaratory judgment allowing the school to use its restricted endowment funds as requested, which would in turn allow the settlement agreement to be ratified and bring the former school’s lingering financial difficulties one step closer to a final resolution.