Posted 3:05 am Friday, July 06, 2012
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Lon Morris Working Toward Partnership
By KELLY GOOCH
Staff Writer
Staff Writer
A Tyler federal court was informed of Lon Morris College's anticipated path toward making a financial partnership with another institution and keep its current chief restructuring officer as it works to reorganize before the fall semester during a bankruptcy hearing Thursday.
The judge can't authorize the partnership until he sees the deal, which is expected to take 60 days to prepare, Chief Restructuring Officer Dawn Ragan said.
The court also decided that the school's bankruptcy case will operate under complex case rules, which means it requires a special scheduling. Additionally, the institution may use a $750,000 debt loan on a temporary basis for operations and capital needs, including current payroll on an interim basis.
The decisions were made at a bankruptcy hearing Thursday afternoon in the U.S. Bankruptcy Court, Eastern District of Texas. Hugh Ray III, of McKool Smith, and Tim Webb, of Webb & Associates, are representing the college, and Judge William Parker of the U.S. Bankruptcy Court, Eastern District of Texas, has been assigned the case. The next hearing is July 24.
During the hearing, Ray outlined the college's financial struggles, explaining that enrollment tripled between 2008 and 2010, capping off at about 1,000 students. With the increase came new equipment, facilities and class opportunities, all of which required new debt while the credit crisis was at tilt, Ray said.
According to an affidavit filed in the Eastern District of Texas, on April 30, the college had about $35 million in assets, including $11 million in endowments and restricted funds, as well as $18 million in funded debt and $2 million in trade and other liabilities.
The Southern Association of Colleges and Schools, which accredits Lon Morris, put the school on warning last year, and after board members met with banks and attorneys this year, a committee was formed and a chief restructuring officer was appointed. At the time, two payrolls had been missed, and the college was about to miss a third.
When reorganization efforts began, about 120 of the college's 130 employees were furloughed and President Dr. Miles McCall had resigned.
Since then, Ray said utility bills have been reduced from $57,000 a month to $10,000 a month. He said that $10,000 allows the college to keep computers and phones going so it can work on marketing and reorganization.
Ms. Ragan said the school is currently operating with a core group of 11 faculty members. Its primary funding is the $750,000 debt loan, and the school won't receive tuition funds until September.
In the meantime, it is working to finalize an academic program for the fall and, in the coming weeks, plans to sign up students who already have applied, Ms. Ragan said.
Ray told the bankruptcy court that student transcripts are being kept at Southwestern University in Georgetown, as is a .69-caliber Texas Revolutionary musket donated to Lon Morris by the family of the late U.S. Sen. John Tower.
All discussions with schools in regard to a potential partnership are being transferred to Capstone Partners, which the school recently hired to facilitate a transaction with another educational institution or strategic partner. The school is trying to complete such a transaction this summer.
Lon Morris initially filed a voluntary chapter 11 bankruptcy petition on Monday -- a day before a scheduled foreclosure proceeding on dormitories, according to a statement from Lon Morris.
"I think basically and foremost (the bankruptcy) allows the college at this point to get on with why we're here and the mission statement and the whole purpose of the college," Lon Morris spokesman Dave Hubbard said earlier this week. "It's been here for 160 some odd years, and we received a lot of support from a lot of people. I've still got 'thank you' notes to write, and we keep getting new ones who want to help."
For instance, a group is cleaning and painting residence halls in anticipation for the fall term.
"Loving Lon Morris," a group of volunteers, also continues to give daily support, Hubbard said, and members of First United Methodist Church in Jacksonville were on campus with lawnmowers on Tuesday morning.
He has said the main focus right now is to stay in compliance with the Southern Association of Colleges and Schools, which accredits Lon Morris.
According to Monday's statement, filing the bankruptcy petition means the college may concentrate on finding a partner or consummating a transaction, which will allow it to continue its core mission of educating students, "as it will realize some relief from its creditors" and "stay legal or collection actions against the college."
Tyler bankruptcy attorney Howard Tagg said generally speaking, creditors have a court deadline to present claims, which the bankruptcy court can accept or reject.
"Basically (bankruptcy) allows time and opportunity to reorganize," he said Tuesday. "It allows creditors to be placed in classifications of priorities."
Dr. Belle Wheelan, president of the accrediting body Commission on Colleges of the Southern Association of Colleges and Schools, said anything Lon Morris can do to salvage the institution is a good thing.
"I don't know how much debt they are in or how long it will take them to get out but at least (filing bankruptcy) puts creditors at bay while they figure it out," she said. "Students are the ones who suffer (in these situations), (and) at least they're trying to keep the doors open for the students."
She said SACS is in communication with Lon Morris, and the next step is for the college to have 30 days to tell SACS what its plans are.
"We're working with them and we're hopeful for them," Dr. Wheelan said.
