Dive Brief:
- Bondholders are pushing the University of the Arts for full payment on tens of millions of dollars in debt, declaring the institution in default on its obligations.
- According to a Wednesday document from the bonds' trustee, UMB Bank, the bank sent a notice of default, acceleration and demand for full payment on the bonds to UArts on June 21, two weeks after the university abruptly shut its doors.
- Since then, the full amount of the bonds has become due. The shuttered UArts has not paid as of Wednesday, according to a recent document. Fitch Ratings deemed the bonds — with about $46 million outstanding — to be in default Wednesday based on the UMB Bank document and withdrew its ratings for the university.
Dive Insight:
UArts’ sudden closure shocked the university’s community, sparked protests and multiple lawsuits, and triggered investigations at the state and city level. At the time leaders announced the closure, they blamed “significant, unanticipated expenses” without detailing what those costs were.
Among those lawsuits is a class-action complaint filed by UArts employees alleging UArts violated federal law by not providing sufficient notice to employees about job losses. Through the lawsuit, former UArts employees are seeking 60 days’ worth of wages and other benefits, plaintiffs said in June.
The lawsuit is ongoing, meaning bondholders aren’t the only ones seeking payment from UArts.
A union representing UArts faculty and staff has also accused the institution of failing to properly negotiate on severance and pay with employees during its wind-down.
The union, United Academics of Philadelphia, issued a statement Thursday following the bond notice.
”Our union continues to demand that affected UArts community members — and not banks or corporate investors — are first in the minds of all officials charged with ensuring justice and accountability following UArts’ closure,” the union said, adding that UArts’ board must meet its obligations to employees “before entertaining any notion of an asset fire sale to repay bondholders or other debtors.”
The university’s most recent financials show a $12 million operating deficit for the fiscal year ending June 2023. Tuition and fee revenue, which made up more than half of UArts’ revenue, fell by 11% year over year to $34 million in 2023.
The revenue drop tracks with a long-term enrollment decline at UArts, with headcounts declining to 1,313 students in fall 2022, down 29% from 2017.
As of last June, UArts’ long-term debt consisted of the 2017 bonds at issue in UMB Bank’s notice.
Those took the place of earlier bonds and helped finance capital projects on the university’s campus, including building renovations for academic facilities, libraries and its music school’s rented facility.
The bonds are backed by UArts’ revenue as well as mortgages on campus buildings on South Broad Street in Philadelphia. The buildings were last appraised at $36 million, according to Fitch.
The fate of UArts’ iconic Philadelphia campus remains an open question. Shortly after UArts announced its closure, The Philadelphia Inquirer reported that the institution and nearby Temple University were in possible merger talks.
But those talks stalled over a dispute with one of UArts' major donors, The Inquirer reported Thursday. Temple said in a statement that it would “continue to explore opportunities with other non-profit organizations that might allow us to revitalize and activate UArts’ facilities.”
