Portrait of a bankruptcy
Morris Brown College is mired in millions of debt. Last August, the school filed for Chapter 11 bankruptcy protection. Here is a summary of what and who they owe.
Valstone Partners — $16.7 million
AME Connectional Church — $5 million
U.S. Department of Education — $1.153 million
Various nechanics liens — $600,000
Current employees — $480,000
Ga. Department of Revenue — $100,000
Internal Revenue Service — $51,000
Unsecured creditors — $10 million
Total —$34.784
Source: Morris Brown College
Trustees of bankrupt Morris Brown College have rejected an offer of nearly $10 million in taxpayer money from Atlanta Mayor Kasim Reed, which would have erased the school’s $35 million debt and resolved its legal woes.
That rejection, Reed said, imperils not only the school's future, but the city's vision of revitalizing the area around the campus and the Georgia Dome in conjunction with the new Atlanta Falcons stadium.
In response, Morris Brown’s lawyer said the city’s offer wasn’t good enough, because it covered the school’s debts but provided no operating funds. She said the college has an even better deal on the table — a claim Reed and other city officials characterized as hard to believe.
The mayor’s biggest fear, he said, is that most of the campus, which is directly west of the preferred site for the new stadium, will be sold off piecemeal, becoming home to liquor stores, payday loan shops and the like.
“I believe I know how the movie ends,” Reed said. “The movie ends with that area looking like a swap meet. And I am not going to have it said that we should have done something.”
Anne Aaronson, a Philadelphia-based attorney who represents Morris Brown, declined to give details of the option the school chose to pursue instead of the city’s proposal. But she called it a “higher and better” offer.
The college is due to present its restructuring plan to the bankruptcy court by the end of this month. Any purchase offer that is part of that plan will be revealed at that time.
According to documents obtained by The Atlanta Journal-Constitution, Reed and Invest Atlanta, the city’s economic development arm, presented Morris Brown with a $9.7 million proposal that would have:
- Purchased all the property tied up in bankruptcy, 37.22 acres, most of which is currently shuttered;
- Paid the school's creditors through structured settlements, on terms already accepted by the largest creditor, Valstone Partners, which holds nearly half the debt;
- Given the African Methodist Episcopal Church, which governs the school, $1 million in cash;
- Paid $480,000 in back pay to professors and staff who haven't been paid in months;
- Allowed the college to rent the four buildings it still uses, which occupy about five acres, with an option to purchase them back after three years;
- Let Invest Atlanta work with developers to redevelop the remainder of the property in accordance with the city's vision.
Two-thirds of the money in the deal would have come from the Westside Tax Allocation District with the rest coming from the city’s general fund. Invest Atlanta and the City Council would have had to approve the deal, but it never got that far.
“Giving Morris Brown an opportunity to become healthy again and … provide accredited degrees to its students was an essential priority for this administration,” Reed said.
But the city’s stake in the issue is far larger than the fate of one school, as he and other officials candidly acknowledged.
Invest Atlanta President Brian McGowan called the campus the linchpin for development around the Martin Luther King Jr. Drive corridor and the new $1 billion stadium, a project Reed took on after the state backed away. As part of the stadium package, the city won commitments from the Arthur M. Blank Family Foundation and the Westside TAD to spend $15 million apiece on improving the surrounding neighborhoods.
“Economic development is a focus of the new stadium, and to have that much acreage out that that we have no control over could negatively affect development on MLK for decades,” McGowan said.
Morris Brown, established in 1881 as the only college in Georgia founded by black people, has been in serious financial and academic trouble since the Southern Association of Colleges and Schools took away accreditation in 2002 because of gross financial mismanagement.
Today, a student body that once boasted 3,000 students is down to just 35 students. Thirteen students graduated in May. Most of the buildings on campus are boarded up, or in one case, burned out. The football stadium is padlocked.
Creditors holding $13 million in bonds secured by Morris Brown were days away from foreclosing on parts of the campus last summer when the trustees filed for bankruptcy protection.
In February, Morris Brown proposed a $20 million bailout from the city that would have gotten the school out of bankruptcy and helped pay operating expenses. The city countered that it had no interest in running the school and couldn’t legally do it anyway.
“Even if we wanted to do it, that proposal was DOA,” said Jalal Slade, the city’s strategic planning officer and real estate expert. “So we tried to re-craft it in a way that made good financial sense for the city, economic development sense for the corridor and good political sense.”
Contacted by the AJC this week, Morris Brown President Stanley Pritchett, board chairman Bishop Preston Williams II, and vice chair William “Sonny” Walker, referred all questions to Aaronson.
In a May 23 letter to Invest Atlanta, obtained by the AJC, Aaronson said the college’s trustees had determined that “the Invest Atlanta proposal was not in the best interest of the college’s creditors.” The letter suggested that the city’s deal would not have satisfied the bankruptcy court.
On Thursday, McGowan sent an official response to Morris Brown. In it, he said the offer had been withdrawn but maintained that the court would have approved the deal.
“We remain convinced it would have been acceptable to all the creditors and bankruptcy court, as well as to the Atlanta City Council and Invest Atlanta board,” McGowan said.
Reed, agitated that the college spurned an offer he had gone out of his way to broker, said he would be amazed if Morris Brown came up with a better alternative.
“We are hopeful that their decision to move forward with another buyer plays out,” he said. “If it doesn’t work out to fruition, I think we will be able to make the case that an exceptional opportunity to save a once great intuition has been lost.”
Gregory Worthy, an Atlanta attorney representing Valstone, which had agreed to drop a lawsuit against the college as part of the city deal, said he is unclear about what Morris Brown officials will do next.
“The real question is what plan do they have that can be put forth in bankruptcy court,” Worthy said. “At this point, I don’t know what it is, but it will interesting to see how this plays out.”
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