Birmingham-Southern College Response to State Treasurer Boozer's Statement
Birmingham, AL (10/30/2023) — In a news release issued on October 29, 2023, Alabama State Treasurer Young J. Boozer II misstates the series of events that led Birmingham-Southern College to its present circumstances. The Treasurer claims to have informed the College "months ago" that it would not qualify for a loan under the Distressed Institutions of Higher Learning Revolving Loan Fund Act. That and many other assertions are simply not factually accurate.
Following is BSC's response, including key events, dates, and interactions.
The Loan Qualifications
The Treasurer has provided inconsistent statements on his refusal to make the loan.
The Treasurer has said BSC did not qualify for the loan under the Act, which is inaccurate. The requirements include:
- Has operated for more than 50 years in Alabama.
- Founded as Southern University in 1856, BSC has operated for 167 years.
- Has a significant impact on the community in which it is located.
- The College has an economic impact of $70.5 million per year in Jefferson County and $97.2 million statewide.
- BSC has educated a disproportionate share of physicians, dentists, lawyers, business and civic leaders, educators, and other professionals who live, work, serve, and pay taxes in every county in the state.
- BSC also serves as a partner to and anchor for the historic neighborhoods of Bush Hills and College Hills that surround the 192-acre campus.
- BSC caused the payment of $13.8 million in state and local taxes last year, so BSC would pay more than $40 million in such taxes over the next three years.
- Has assets sufficient to pledge as collateral.
- The College offered the State a first secured position in collateral that exceeds several times the amount of the proposed $30 million loan, including its 192-acre campus in west Birmingham and U.S. Treasury securities.
'Terrible Credit Risk'
The Treasurer has also said the reason he denied the loan is because BSC is a "terrible credit risk," a fact not in dispute and in fact was the impetus for the legislation, which he lobbied against before its passage.
If a college or university had an A rating from Moody's or an excellent credit rating or the ability to borrow more from a bank, that institution would not qualify for the Distressed Institutions of Higher Learning Revolving Loan Fund because it would not be "distressed."
But because BSC is distressed, the Treasurer says the College does not qualify.
The Treasurer has also said the denial was because BSC had not provided the State with a first position on all collateral assets securing the loan. As the College's primary lender, ServisFirst holds a first-priority interest in BSC's collateral and had agreed to restructure its loan in a manner that would allow for the State to have a first lien on the collateral for its loan.
BSC has presented two proposals - one on Sept. 26 and another on October 12 - both of which provided the State with a first position in the collateral assets securing the loan. The Treasurer rejected both proposals and has refused to make a counter proposal.
Proposal 1 (presented to the Treasurer on September 26):
The State would receive as collateral a first secured position on the entire campus except for Hilltop Apartments and the Consolidated Pipe and Supply Co. headquarters, located on campus and owned by the College.
- First draw = $16 million. The campus without Hilltop Apartments and the Consolidated Pipe headquarters appraises for about $75 million, over 400% of the amount of the first draw. This is like a bank lending money to someone to buy a house with 79% down payment.
- Second draw = $9 million. This would have been collateralized with U.S. Treasuries from donors.
- The interest on the U.S. Treasuries would go to the College. The Treasuries would go to the BSC Foundation when the loan is paid back.
- Third draw= $5 million. This would have been collateralized with U.S. Treasuries from donors.
- The interest from the U.S. Treasuries would go to the College. The Treasuries would go to the BSC Foundation when the loan is paid back.
- Moreover, BSC would release the campus as collateral before the Treasuries, implying that in about 10 years, the State would be 100% secured by Treasuries.
Proposal 2 (presented to the Treasurer on October 12):
On Day 1, the State would receive as collateral a first secured position in the entire campus except for Hilltop Apartments but including the Consolidated Pipe headquarters. The State would also receive as collateral a first secured position in the Hilltop Apartments prior to the second-year draw.
- First draw = $16 million. The campus without Hilltop Apartments but including Consolidated Pipe appraises for about $77 million. This is like a bank lending money to someone to buy a house with 80% down payment.
- Second draw = $9 million. This only happens if BSC provides as additional collateral to the State a first secured position in the Hilltop Apartments. If the apartments appraise at approximately $17.5 million, then the State has loaned $25 million against $94.5 million in assets, like lending to someone to buy a house with 73.5% down.
- Third draw = $5 million. No more collateral to be posted. The loan is about $30 million (slightly higher because it grows at 1% per year until we start servicing the debt in 2029).
- At this point, BSC will have borrowed about $30 million against collateral of about $94.5 million, buying a house with a 68% down payment.
- In this scenario, the State has all of the collateral assets.
The Bond Rating
In an October 29 story on al.com, the Treasurer cited BSC's bond rating as the reason for denial, although bonds had not previously been discussed.
However, the Distressed Institutions of Higher Learning Revolving Loan Fund has no criterion based on bond ratings of applicants. Even if it did, the bonds referred to by the rating agencies do not have the collateral that was offered to the State, which was more than sufficient to protect the State in case of default. "Junk bonds" - to which the Treasurer compared BSC's bond status -- are not backed with U.S. Treasuries and assets valued at 4.5 times the initial draw on the requested loan. The rating agencies would not have seen BSC's financial restructuring plan, which will put the College back on its feet by academic year 2026-2027.
The Treasurer saw that restructuring plan in May, even before the bill was passed.
BSC has presented two proposals that put the State in the best possible position for payback of the loan that will keep the College open. We have been fully transparent about our challenges - how we got here, what it will take to move forward, what we can offer to ensure the State is protected, and how we will make sure we are never in this position again.
Actions and Inactions
A timeline of key interactions between BSC and the Treasurer reinforces the College's contention that the Treasurer intentionally executed a veto by delay. Given his statements, actions, and inactions from the time the bill was passed in June until his denial letter was received on October 18, it is clear that the Treasurer never intended to make the loan, which raises the question of why he did not communicate that decision to BSC right away.
If he had, it would have been heartbreaking news, but the timing would have avoided the catastrophic impact of his delaying until mid-October.
- In July 2022, President Daniel Coleman meets with State Treasurer Young J. Boozer III to discuss possible ways the State can help BSC obtain bridge funding. The two meet again in February 2023, after BSC has exhausted efforts to obtain funding from the State's American Rescue Plan Act allocation.
- In April 2023, BSC's Board of Trustees receives assurance from legislative leaders that should the measure they are supporting pass, the College would be positioned to borrow the $30 million needed to keep it open while private funds are raised. Sen. Jabo Waggoner introduces SB278 to create a mechanism to loan BSC the needed funds. The bill is written with BSC's situation in mind.
- In May 2023, the Senate passes SB278 and BSC begins sharing documents with the Treasurer. The House passes the Senate bill despite the Treasurer lobbying against it.
- On June 6, the Treasurer visits the BSC campus and expresses a desire to subordinate ServisFirst's position with respect to existing debt.
- On June 16, Gov. Ivey signs the Distressed Institutions of Higher Learning Revolving Loan Program Act into law after adding Executive Amendments, which were accepted by the House and Senate.
- In July, the Treasurer tells President Coleman he is requesting an Attorney General's opinion on the Act prior to formally launching the program. He indicates the College's restructuring plan is what he needs for now.
- On July 14, a copy of the loan application is posted to the Treasurer's website. When BSC inquires as to whether their application should be filed electronically or in hard copy form, the school is told the application was posted to the web inadvertently and it is taken down.
- On August 24, the Attorney General declines to issue an advisory opinion and The Treasurer announces he will accept applications. The new application is unchanged since the inadvertent posting more than a month earlier. BSC files their application the same day.
- On August 28, the Treasurer tells Coleman he "wish(es) we had gotten (the loan processed) in July."
- On September 6, the Treasurer asks Coleman why BSC isn't applying for the full $30 million originally contemplated when the Act was written and encourages him to apply for the full amount.
- On October 5, the Treasurer again raises the issue of BSC's relationship with ServisFirst and says for the first time ever that he thinks ServisFirst should be the entity loaning money rather than the State. The statement is completely unexpected.
- On October 13, the Treasurer tells Coleman that he is not inclined to make the loan and states that ServisFirst should do so -- this even though the only changes from the time The Treasurer said he wished the loan could have been finalized sooner are improvements in the collateral offered the State.
- On October 18, after receiving a letter from the Treasurer dated October 13 in which he denies the loan application, BSC is forced to file a lawsuit to protect its rights and compel The Treasurer to act in accordance with the intentions of the Legislature in passing the Act.
We are uncertain why the Treasurer has mischaracterized the events of the past several months. Certainly, the Treasurer has many duties for which he is responsible, but for months now the question of a loan for BSC has been the primary preoccupation of the College administration. We have paid close attention to every development and taken careful notes at every turn.
The Treasurer has determined he will not extend a loan to BSC as the Legislature intended when it conceived and wrote the Act. But he at least owes Alabamians the full and honest truth.