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Sweet Briar

Sweet Briar’s $27,271,853.11 Problem Nobody is Talking About


If Sweet Briar has an $85 million endowment, how could it be in such dire straits that it has to close? In short: It doesn’t have an $85 million endowment it can use to operate the college.

The devil is always in the details.

The decision making process and rationale of Sweet Briar’s board of directors to abruptly close the college has been about as transparent as a blast door at NORAD.  No details of what constituted the “insurmountable” financial challenge have been disclosed to anyone outside of their boardroom. The only sources of information are scant rumors and what can be obtained through public records.  But as it turns out, there is more in the public record than anyone seems to realize. The explanation for what is really going on is on display for the world to see, though one does have to know which stone to look under for the answer.

Sweet Briar’s official statement announcing the closure omitted one very important detail :

The board closely examined the College’s financial situation and weighed it against our obligations to current and prospective students, parents, faculty and staff, alumnae, donors and friends.

They forgot to add bondholders to the list of people to whom they are obligated, which is somewhat odd considering their bonds appear to be an enormous force driving the lemmings of the board over the cliff. But then again, making a deal with the devil is generally not something that is openly and transparently advertised to the world.

The audited public financial statements show that as of June 30, 2014 the college had $25.86 million in bond debt. On the surface, that is an unremarkable fact. Many colleges have bond debt. Sweet Briar has two bonds on its balance sheet, a 2006 bond underwritten by Wachovia (which was acquired by Wells Fargo, the nation’s fourth largest bank), and a 2011 bond* held by SunTrust, a large regional bank headquartered in Atlanta, Georgia. Using rounding to keep the math simple, and assuming payments have been made according to schedule since June 30, 2014, the estimated balance of the 2011 bond as of June 30, 2015 is around $8.92 million, and the 2006 bond is $16.5 million. That is a total of $24.8 million in bond debt. The college spends about $2 million a year servicing that debt.   Again, these are unremarkable facts.

So what gives?  Did you not see the asterisk above?

*  Terms and conditions may apply.  2011 bonds may cause nausea, vomiting, incontinence, temporary blindness while driving, or the implosion of an amazing all women’s college which will enrage at least 10,000 people. Use with caution.

Something curious happened in September of 2014.  There was an amendment to the 2011 bond changing the events that could cause the bonds to go into default.  The new provisions do not fall in the “unremarkable” category. I would go so far as to say the amendment falls in the red flag, alarm bell, people running around with their heads on fire category.

There is only one reason you approach a lender and revise the default provisions of your loan: you think you are going to default under the current provisions.

In Sweet Briar’s case, they are set up for a double whammy when it comes to bonds.  If they default on the 2011 bond, that triggers default of the 2006 bond, and if they default on the 2006 bond, that triggers default on the 2011 bond.  Yikes!  If one goes, they both go, and that currently comes with a $24.8 million price tag.

The default provisions in the 2006 and 2011 bonds are not the same, as the 2006 default provisions are far more forgiving. The people in charge were clearly spooked about triggering default under Section 4.8 of the 2011 bond agreement (emphasis added):

Section 4.8 Bond Rating. The Borrower shall at all times maintain a rating on its long term indebtedness at least equivalent to (i) its current rating of BBB with Standard & Poor’s Corporation or (ii) a comparable rating with another nationally recognized rating agency.

As it turns out, they were somewhat right to be concerned. In November of 2014, the college’s S&P bond rating went from BBB stable to BBB negative. That’s still a BBB rating, but with it changing from stable to negative, that meant the college needed to take measures to change what they were doing and turn the ship around.

How long had they known there was a real risk of a downgrade? The amendment is dated September 1, 2014, which means they had to be negotiating with the lender for a while to get everything worked out with attorneys and whatnot.  It would be reasonable to estimate at least 60 to 90 days for those conversations. But one would presume that the board, or most likely the finance committee, began to discuss a course of action after S&P’s November of 2013 annual review.  S&P most likely fired a warning shot across the bow of the likelihood of a downgrade on the next review, meaning the college needed to act quickly to refocus and turn things around.  After all, the fate of the college was at hand if the bonds went into default.

UPDATE: In fact, at the time of the writing of this article, someone posted a transcript of a faculty meeting with Sweet Briar’s President, Jimmy Jones, and the VP of Finance and Administration, Scott Shank which confirms this speculation. See line 94 of that pastebin page).

It was clearly time for the board to take action.  But rather than take that opportunity to go for an Extreme Makeover – College Edition, they decided to change…nothing, other than the default provisions of the 2011 bond to buy more time in which they could continue to do nothing.


The 2011 bond amendment added a Liquidity Covenant, and changed the default provisions to read as follows (emphasis added):

“Liquidity Ratio” means, with respect to the Borrower, the ratio of (a) Liquid Assets to (b) Total Funded Debt.

“Liquid Assets” shall mean the sum of Borrower’s unrestricted cash and investments and temporarily restricted cash and investments as then recorded on Borrower’s balance sheet.

“Total Funded Debt” shall mean the sum of Borrower’s bonds payable and capital lease obligations as then recorded on Borrower’s balance sheet.

Section 4.8 Bond Rating. The Borrower shall at all times maintain a rating on its long term indebtedness at least equivalent to (i) its current rating of BBB with Standard & Poor’s Corporation or (ii) a comparable rating with another nationally recognized rating agency.

Section 4.9 Liquidity Covenant. At the end of each fiscal year, the Borrower shall have a Liquidity Ratio of not less than 1.10:1.

Section 5.1 Event of Default Defined. Each of the following events shall be an Event of Default hereunder:

(a) Failure of the Borrower to make any payment on the Note or to otherwise provide for payment of the principal, interest or premium, if any, on the Bond when the same becomes due and payable;

(b) Failure of Borrower to observe or perform any of its other covenants, conditions or agreements hereunder for a period of 30 days following notice thereof given by the Authority or holder of the Bond specifying such failure and requesting that it be remedied. Notwithstanding the foregoing, failure of Borrower to observe or perform the bond rating covenant as described in Section 4.8 of the Financing Agreement (the “Bond Rating Covenant”) or the liquidity covenant as described in Paragraph 2 of this Amendment and added as Section 4.9 of the Financing Agreement pursuant to the terms of this Amendment (the “Liquidity Covenant”) shall constitute an Event of Default only if Borrower simultaneously fails to comply with both the Bond Rating Covenant and the Liquidity Covenant.

There are six other default provisions in addition to the ones listed above, but Provision (b) is where things get exceedingly ugly.  The college already suspected the downgrade was coming, and that’s why they modified the terms.  They negotiated with the lender to add a liquidity covenant which requires $1.10 in liquid assets for every $1.00 of debt, and the bond would only go into default if the college simultaneously failed to comply with both the Bond Rating Covenant and the Liquidity Covenant. This meant if they were downgraded by S&P, if they had enough liquid assets on hand, the bond would not go into default.  In effect, they had collateralized both bonds.

The catch here is the definition of Liquid Assets. It includes everything except restricted funds. As of June 30, 2014, they had about $2.2 million in cash on hand, and $41.7 million in the then $96 million endowment that was not restricted, meaning they had $43.9 million in total liquid assets as of June 30, 2014. However, in the transcript noted above, Scott Shank states that at the time they negotiated the liquidity covenant: “…we knew based on what we had negotiated, that we had already passed the liquidity trigger for that year.

Basic arithmetic indicates the college will have $24,792,594 in Total Funded Debt as of June 30, 2015.  Based on that figure, and considering S&P downgraded them below BBB once the closure was announced, they are required to have $27,271,853.11 in Liquid Assets by June 30, 2015. At this point, none of restricted portion of the endowment has been released by the Attorney General, as there is a 60 day waiting period, which assuming they initiated on March 3, expires on May 2.  Assuming nothing has been released and assuming the restricted portion of the endowment has had growth of 3% for the purposes of discussion, the restricted portion of the endowment will be about $56 million on June 30 this year.  Adding the required Liquid Assets of $27,271,853.11 to the $56 million restricted portion of the endowment indicates the college would need an endowment and/or cash on hand of $83,271,853.11 on June 30 just to maintain the Liquidity Covenant.

Since the administration refuses to release any financial information covering anything after June 30, 2014, data has to be extrapolated based on public information.  Statements from the college indicate the endowment is currently around $84 million, which indicates they have somehow taken around $12 million (about 12.5%) in the last 10 months, and there are still three months left in this fiscal year. In the transcript of the faculty meeting, Shank says they are only projected to have  $18.3 million of unrestricted funds in the endowment.  Although Temporarily restricted funds are built into the calculation, it is  As such, there is likely not enough unrestricted endowment and cash on hand to continue operating without triggering the default under the liquidity covenant of the 2011 bond, which will in turn trigger the default of the 2006 bond.

but wait

As mentioned above, there are other events that can trigger default. Provision (d) is a big deal too. The bonds go into default for:

(d) Failure of the Borrower within 60 days after the commencement of any proceeding against it seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, to have such proceeding dismissed or stayed…

The Amherst County attorney filed suit on March 30, 2015, and is seeking an arrangement whereby the college cannot use endowment funds to close the college, and she seeks the reorganization of the board and the appointment of a financial trustee.  It is possible this clause means if the action against the college is not dismissed or stayed by May 29, 2015, the 2011 bonds will be in default.

If the problems with the 2011 bond are not addressed in the immediate near future, no plan to save Sweet Briar has a high probability of success.

UPDATE:  According to the transcript of the faculty meeting, both triggers have been passed, which means if there are not additional funds released from the restricted endowment, or if the 2011 series bonds are not paid off, they will go into default on June 30,

How to fix the problem

Over the course of the last month, I have had the pleasure of being involved with a group of people working incredibly hard to find a way to save Sweet Briar.  I have no doubt that it can be saved, but the question is: Will it be saved?

The immediate need is to pay off the 2011 bond for around $9 million. The college simply can’t operate with limits on liquidity at this point in time.  Saving Sweet Briar, Inc. has already raised more than half that in only 6 weeks, so averting the bond crisis appears to be an easily attained goal.

The next step is the college needs to commit to staying open, and the alumnae need to continue to rally to preserve their cherished traditions, their devotion to single sex education, and to continue Indiana Fletcher Williams’ vision and memorial to her daughter Daisy – into perpetuity.  If the decision to stay open is not made very, very soon, there will be precious few students to return in the fall.  With each passing day, another student commits elsewhere. There are students who will not be able to go college at all if Sweet Briar closes, as they are losing their aid packages.

It is time for Paul Rice and Jimmy Jones to open their ears and listen to people who have solutions for keeping Sweet Briar open. I have personally seen many of the proposed solutions, and I have contributed to some proposals as well. They are real, and they can work, but it will require an open conversation, and it will require alumnae like Sarah Clement to dig a little deeper.

I have heard one unfortunate theme from people trying to raise funds. Many major donors feel like they have been given money over the last 5-10 years and just had it thrown away. Unfortunately, that does appear to be the case, otherwise the college would not be in this situation. Those people stopped donating well before the announced closure, as they wanted nothing to do with the current board or administration. At this point, it is safe to say almost everyone has joined that club.

If you are one of those past major donors and you are reading this, know that there is a small group working very hard to figure who you are since the college has not made alumnae giving information available to people trying to stop them from closing the college.  Those volunteers want to sit down and talk to you personally about restoring Sweet Briar to her full potential and not having your money squandered. If you want to be a part of preserving  the Sweet Briar tradition for future generations, contact Saving Sweet Briar, Inc.  The goal of saving Sweet Briar will require four basic things in order to succeed:

  1. A new board
  2. A new administration
  3. A whole lot of money, and
  4. Ideas from a very active and involved alumnae base. (Already done.  Holla holla to the overachievers!)

Everyone learns from their mistakes.  And there are lessons to be learned here for the extended Sweet Briar community, as well as for all non-profit stakeholders.

How to govern is lesson one.
A board with no transparency and an administration with no accountability?

papa-in-whirlpool (250x207)

Yes Sweet Briar.
That is what you should not do.
So let that be a lesson to you.


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  1. Lee Roebuck

    Sweet Briar is a special place. Alumnae have a very strong emotional bond to the school which is what makes the SSB group so impressive and determined to save the school. Perhaps you coud look into what Paul Rice and Jimmy Jones may stand to gain from the closing. From what I can find about Paul Rice his connection to the school is that a) his daughter attended for a brief time, b) he made a lot of money after selling his company and spent his subsequent time as a “philanthropist” sitting on boards, c) his passion while serving as an SNC board member/ chair was UVA, as evidenced by his significantly greater gifts to UVA compared to his 20 times smaller gift to SBC ($10 million versus $50 thousand). He did not care enough about the school to even try to save it. And all the land could be a tempting grab for someone in the know…

  2. Elizabeth Perkinson Simmons

    Thank you for your thoughtful and reasoned words. I sometimes feel this is a forest and trees situation. So much emotion is involved when practicality is what is needed. Please continue to help us keep our head on straight and our eyes on the prize!

  3. Ginia Zenke

    Not bad for a smartass. 🙂 You cut to the choicest bits of meat. Yesterday I was wondering how Amherst County could be pulling for Sweet Briar’s sale through its redevelopment commissione as described in the meeting schedule seen yesterday, and have an Amherst County District Attorney file suit pulling in the other direction that looks like it is against its closing, but in fact, now puts a faster timer on the bond default. If I’m reading this right, what was due on June 30th is now necessary the first week in May, and any unrestricted funds might have been available closer to June 30th can’t help the situation in early May. Man, that is slick.

  4. Piper Van Doorn

    Thank you, thank you Jay Orsi! This a brilliantly written article; concise, full of the facts we’ve been needing, craving, and yet rendered with enough wit and humor to help us choke it down. Well done, you!

  5. In reading this fabulously clear, clever and creative article I feel as though, simultaneously, I am watching the movie: “Pee Wee’s Greatest Adventure,” when Pee Wee crashes into a group of kids while riding his bike, and so not to be embarrassed, declares: “I did that on purpose,” Honest to goodness, if our esteemed BOD, a wildly successful entrepreneur had a 10 year plan, on purpose, to sink any corporation quicker, he could not have done a better job (never mind also changing the food to what has been reported as no better than airline food, which is another way to verbally, amongst prospective students, sink a college, especially a rural college not near a Starbucks). Also, since I’m such a movie fan, the immortal words of Margaret Mitchell in GWTW keep coming to mind: “LAND is the only thing that matters because (LAND) it is the only thing that lasts.” Methinks, Hamlet, that there is something long planned, very wrong and most rotten in Denmark.

  6. Jane Dure

    Jay, If I am reading the financial guy’s statements right, SBC expected to the bonds to be downgraded, so they sought a Liquidity covenant, even though they were past the Liquidity trigger at the time they amended the agreement. Am I reading this wrong?

    Thanks for all that you are doing.

    • Jay Orsi

      You read that absolutely 100% right. The technical detail about the liquidity covenant is it is measured as of the school’s fiscal year end – June 30. Assuming they were going to get a downgrade in November, they added the liquidity covenant to get them through the school year.

  7. As a lawyer who has worked on municipal bond deals from time to time, I think that Jay Orsi’s comments are quite incisive. My suspicion is that the 2011 issue is held by a private investor or a few private investors. Its terms, which include quarterly interest payments and the liquidity covenant, are not typical for a routine municipal bond issue. In contrast, the 2006 bond issue contains routine covenants and events of default.

    The logical step is to renegotiate the 2011 bond issue. Several ideas come to mind. As part of a re-negotiation and a revision of the covenants , a portion of the 2011 bond issue could be paid off with funds raised by Saving Sweet Briar and/or funds available at Sweet Briar. ( In view of the risk of default, it may be possible to buy back bonds at a discount.) It also may be possible to substitute a one-year debt service reserve or other collateral in a fashion which preserves the tax-exempt status of the bonds.

    Assuming Mr. Rosi has the facts right, one also has to wonder what the College administration and Board were doing in agreeing to an amendment in 2014 which did not solve the covenant compliance issue on a longer-term basis. There are also issues with the College’s compliance with required continuing disclosure under SEC rules.

    • Jay Orsi

      Thanks Richard! As noted in my bio, I’m not an attorney, so I was just going with a plain language layman’s reading. I find it quite stunning that they opted for a self-inflicted liquidity crisis instead of trying to raise the $10MM to pay off the 2011 bond. They really didn’t think they could raise $10MM??

      In the transcript of the faculty meeting, Shank talks about all the warnings from S&P about changing things, so what did the college change? Nothing. Absolutely nothing. It’s nuts.

      • Jay — It may be very difficult for Sweet Briar, even with assistance from the Saving Sweet Briar campaign , to pay off $10 million right away. They probably need liquidity for their operations. It should be possible to renegotiate and change the liquidity covenant so as to give Sweet Briar more time and accompany the renegotiation of the covenant with a partial prepayment of the 2011 bonds, using funds from Sweet Briar and the Saving Sweet Briar campaign. For example, a simple change would be to agree to suspend or modify the liquidity covenant for 18 months or so and substitute a covenant that Sweet Briar can meet. The curious thing is that the Sweet Briar administration and Board actually created the conditions for their own potential default and made things worse by their own mistakes or inattention. Did they realize that announcing the College’s closing would promptly tank the College’s S & P rating and worsen their financial peril? As you point out, a default on the 2011 bond issue also causes a default on the 2006 bond issue.

        In theory, Sweet Briar might propose to provide some collateral for the 2011 bond issue but they would also need to provide the same benefit to the holders of the 2006 bonds so that would be too complicated and require bondholder approval if one were trying to fix things in a hurry.

      • Clemen

        Glancing at the pasted transcript has me need to add that beyond what is more then implied here, the game being short term and ‘closing’ term, was the confessed error that the rating agency did not play along in calling there, SB’s ‘bluff’ to proceed without complying with the raters demands. There rating did not drop as much as expected so the risk taken on was real, as opposed to moot since it was no longer redundant.

        They tried to serve too masters at this point, closing well, or surviving (if they are to be believed,) but I join those of the opinion that closing was addressed at the expense of surviving. The cliche’d corollary therefore is that the truth is they only claim to be serving nobody.

        I did not note the date of this transcript. It is assumed to be recent, with certitude for this comment of mine.

        The expert above and promissed additional advice are too subtle and not yet seen by me.

        I speculate that the reporting requirement MAYBE related to the bad faith in terms of gaming the timing of default at the expense of solvency to buy short term benefits only spendable if the college closes.

        This article follows prior reporting on older bonds whose profitability was far too high- the kind of “what you did last summer” horror that explains resignations to out chase flying shit past eviscerating fans.

        Which all more then founds suspicions of coverup driving dignity pretenses. Either it, or us, conflicts the board.

        Now for the criticism of the near pandering for additional donated capital.

        To want for additional time without insolvency is prideful. Understandable, but wrongheaded.

        Many faculty did not vote against the no confidence measure which MAY be because they cared more about sparing funds from expenditure on other then them.

        Discount ratio’s are normally capped by nonprofits in say housing, by limiting the financial ability of customers- if you can pay over then two thirds of the shelf price then you are too wealthy to live here they proudly disclose to tenants and donors both. They do this to be spared donors moving in as much as to provide help to those who most need it. Alternatively some provide unequal accommodations mainly at public expense only to wealthy donors who so far have always claimed they will pay obscene rates out of pocket for long enough to qualify to subsequently live out there lives on the dole.

        This president however is bizarrely sour over how few spend over a hundred dollars house etc. each oversized pet compared to in the past. In our shared economy women no longer need to own there own personal exclusively ridden by them horse. This side business vanishing is a good thing. Those who pay over 80% of the rack rate are not needed and I believe likely are responsible for the demise now risked.

        My writing attempts to speak for the deceased’s intentions. She did not roll in her grave for half a dozen years, but for decades it is claimed this school cared more about maintaining scale then permanency.

        I think the rainy day fund NOT being spent has been the only issue. It should be spent before discretion to invest it on the campus is lost.

        I think the cost of money in recent years exceeds almost any ‘green’ sustainable technology offerings.

        PLease calculate that cost of money as a percent and publish that number! The rate was well into the double digits when fees already paid are included. Yet the campus likely has nonlabor bills that are hundreds of percent what they could of been, and can be in the future if money is invested.

        I also want to emphasize the true asset which is not this piggy bank for pensions and worse- but rather the engine of taking in young people of almost any ability, and harvesting from them great sums in grants alone. Emphasis should not be on how much the school spends, but rather on how little students have to pay for the school to receive if not earn much more.

        The estate has obtained the ability to do that. It is beyond honest debate that such ability can be maintained, and that it can sustain the place for as long as those grants remain available to any accredited schools students. Denying admission to children from too wealthy families may or may not be necessary to maximize scale. I personally find such polices offensive, but they are the general rule, believe it or not, in other then higher education. There spirit is that this is a place of giving, where employees are not mercinaries, but rather accept submarket compensation because there customers are of limited means. They need not bow to the children of those whose names appear on libraries plaques, but only teach all who get admitted because of mutual consent.

        Not the presidents prior employer, but the same named Catholic School in our nations Capital did this, became remedial, a ‘charter’ school in essence accepting pell grant funds as full payment, making present day degrees mean something diferent then past Alum’s, but worthy of the mission nonetheless.

        Complaints about too high a ratio of underclass to upperclass, fresh and sophmore to junior and senior, began to perish this year as admission rates going down MIGHT of resulted in higher graduation rates, perhaps much, much higher. I say this because the selfdrawing from a larger pool of accepted applicants suggests no less! Yes they took more common funds per seat, but would be retained as other then losses for that reason!

        So it is a very good thing that there is no living master given discretion beyond the obscene however legally compelling claims that in this state the dead are waiting booty.

        The will simply stated was- any funds, if any, can suppliment what students are able and willing to pay. There need not be students- but the place must be managed to other then close is to me implied. Good thing that it clearly can afford to have students makes disagreements about there necessity moot.

        What it can not afford is temptation to close among those who obtain ability to gamble recklessly it’s equity. Such gambles SHOULD deny creditor’s party to them any repayment beyond principal- and that only as comfortably can be extracted. Such contracts have lenders on notice- the borrower can not be forced to pay, and if sane will choose to refrain from such overpayment. Any lender who loans in violation of the public documents restrictions depends on evil available only when the rest of us look away.

        Suckers have the highest bond ratings- this is yet another bitter pill to swallow. IN business now paying at the last minute is excellence– not sign only of desperation.

        So the millions lost by humoring prior voidable contracts need to be litigated back into it’s coffers clearly.

        This is best done in federal court- they are possibly fraudulent in being entered into by a traitorous board beyond the usual litany of reasons to to recover them.

        The avoidance of bankruptcy is the sin here.

        Debtor-creditor collusion runs rampant.

        The two arguments I make only appear to be in extreme conflict.

        ONE: The cash on hand and other extractable wealth is what endangers

        TWO: Invulnerability at all costs must be the non-negotiable priority going forward. NO DONATED FUNDS MAYBE HELD DIRECTLY BY THE SCHOOL! EVER. Any, and any would be not needed, period- but any money thrown must be held in actual trust, not available for other then ongoing operation, if spent for any other purpose at the liability of the donor by a multiplier- donate ten million and should the funds get looted you owe FIFTY million more.

        I take these mockable position because I find the land was owned by progressives. It is there mandate for it to finally raise fully from the dead and kick not just local ass, very very hard.

        Early in my career I realized that psychometric research was castrated in regard to identifying under achievers. Since then things have gotten much worse- almost all aptitude testing has been abandoned, ‘achievement’ has been given weight to an extent that our world is most endangered by positions being filled by almost exclusively over achievers. Strategic marketing for Sweet Briar can involve big data- ask not who scored most consistent with test makers answers but rather got wrong the most often answered correctly- but right those so rarely for such low scores questions. Such minds are not guessing at the answers- they are bored by most of the questions.

        Admit only otherwise not phd prone applicants. The small but certain number of phd’s eventually from those crops will be our best bet to stop the skyfall. This is the mission of academia- to let thinking rule the world more then ever before. The threat of that is why this college is a target for destruction- and why it has never stood fully up- yet.

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