Debt Restructuring Agreement Ensures Financial Stability of TJSL
October 29, 2014
FREQUENTLY ASKED QUESTIONS
Q. You just announced a major debt restructuring. What are the key elements?
A. The school had approximately $127 million in bonds outstanding from a $130 million debt incurred in 2008 to build its new building. As part of the transaction, the bonds will be cancelled. In exchange for cancelling, the bondholders will become owners of the building and lease it back to the school for up to 10 years with an annual rent of $5 million.
The lender will also issue $40 million in new notes at an interest rate of 2 percent. Interest rates on the previous outstanding taxable bonds were over 11 percent.
The agreement cuts the school’s debt by almost $87 million, from $127 million to $40 million, and results in a significant improvement in cash flow. Previously, the school was paying about $12 million a year in principal and interest on its debt. Under the restructuring, the school will pay $5 million in annual rent and about $1 million a year in interest, improving annual cash flow by a total of $6 million.
We are very pleased to report that school operations continue unchanged under the new agreement. The bondholders have expressed support for the school and its future plans.
Q. Why was the debt restructuring necessary?
A. In 2008, the law school took on debt to build a beautiful, state-of-the-art campus in downtown San Diego. What happened to the law school since then is what happened to millions of people throughout the country beginning in 2008 as the country entered a recession.
When the economy faltered homes went underwater — worth less than the money borrowed. Our new building, which secured the debt, was significantly underwater. Combined with the national shrinking of the law school applicant pool, we suffered a significant decline in law school income, which made the existing financial arrangement untenable.
When the new administration came aboard in 2013, it quickly identified several major issues that needed to be addressed to ensure the long-term future of the school. The new administration had experience turning around other schools and retained expert outside advisors to help put together a strategic turnaround plan. The goals were to ensure a positive future for the school and increasingly higher ratings in all measures of legal education and student achievements.
The restructuring of the debt was key. It puts the school on a solid financial footing and will enable Thomas Jefferson to continue to fulfill its mission serving a diverse group of students in a collegial, supportive learning environment.
Q. How will students be affected by the restructuring?
A. Students should not see any change in the operation of the law school caused by the restructuring.
Q. Will you be moving to another location?
A. We have the finest facility in the U.S. for legal education. Part of the restructuring is to give the building to the bondholders with the school leasing the building back. The school has no need and no intention to move.
Q. How many students do you have now? What was it last year? The year before?
A. Annual enrollment is down approximately 27% from Fall 2012 (FY 2013), which is consistent with what we budgeted for.
Q. Has the decline in enrollment been part of a national trend in legal education?
A. According to the American Bar Association figures, first-year enrollment at the nation’s law schools for Fall 2013 dropped 11 percent from the previous year, part of a staggering 24 percent decline in just three years. According to the American Bar Association, Fall 2013 saw the smallest incoming class since the 1970s, prompting fears that the legal education system has reached a crisis.
From 2010 to 2014, Thomas Jefferson School of Law’s total enrollment profile seems to be following the national trend with slightly declining enrollment over the past three years.
Q. Will the trend continue?
A. No one knows for sure. Few observers predict significant growth in the near term. However, we believe the downturn is bottoming out. There are recent studies that indicate that graduations from law school and growth in the job market will reach equilibrium in FY 2017.
Q. Given the current operating expenses, rent and other costs, is your current enrollment large enough to give the school some financial stability?
A. The entire restructuring is premised on projections of no growth in entering J.D. students. With the restructuring and tight controls on operating costs the school has achieved financial stability.
Q. What are you forecasting for enrollment in 2015 and 2016 and beyond?
A. We had an entering class of 204 full time equivalent students (FTEs) for the Fall 2014. We expect to stabilize at that number. With the graduation of second and third year students, we envision a total J.D. enrollment as follows:
Q. You had extensive cuts in staff the end of 2013; do you expect to have similar cuts this year?
A. We do not anticipate a reduction in the number of staff as a result of the restructuring.
Q. With the reduction in student enrollment, do you expect a reduction in the number of faculty?
A. We have a highly respected faculty. A primary goal of the law school is to maintain that quality. The media have widely reported that higher education in general and law schools must deal with how to reduce the size of the faculty as enrollments have declined. TJSL will continue to analyze our need for any change. Our hope is that reductions will occur through attrition. As has become a national trend, the law school has offered a retirement incentive program to its faculty. Decisions about what other steps are necessary will be made after we see the response to that program.
Q. Does the current level of faculty satisfy ABA requirements for a student to faculty ratio? What is your current ratio? How has that changed the past two years?
A. Our student to faculty ratio has been consistently at 20 to 1 in recent years. Prior to August of this year, 20 to 1 was the ratio at which the ABA considered the school to be in compliance with accreditation standards. The ABA no longer has a specific ratio. Our student to faculty ratio improved this year and we are projecting that the student to faculty ratio will actually improve over each of the next four years as follows:
Q. Critics say the school has one of the lowest rates in the state for its students passing the bar. Have the cuts in faculty, staff and curriculum contributed to that? What steps are being taken to improve this rate?
A. We have not cut faculty or staff in any way that affects the law school’s academic program. Indeed, the past few years have seen an increase in the resources devoted to passing the bar exam.
Two years ago, the law school adopted a comprehensive program to address this issue and hired staff to implement that program. Upon the new dean’s arrival, the faculty went on to adopt a sweeping array of changes to the way they will teach and assess all courses at the law school that are tested on the California bar examination to improve the rate.
The law school has also taken steps to help its alumni who are repeat bar exam takers. In a major commitment of resources, the school has made available the supplemental online version of the BarSecrets® bar course to TJSL repeat bar examination takers at no cost.
Q. The school reported that just 29 percent of 2013 graduates landed full time jobs in the legal profession. What are the plans to increase the success rate in post-graduation employment?
A. The law school recently hired two professionals in the career services office and is developing a comprehensive strategic plan. Of course, the general downturn in the economy has much to do with the terrible state of the job market, but the school is committed to do more for its graduates and their future in the legal profession.
Q. How diverse is the student body at TJSL?
A. We have a diverse student body by many measures, of which we are most proud. Our mission is to provide an outstanding legal education to a diverse student body in a collegial and supportive environment. Our graduates often go on to work with under-served populations, helping solve unmet needs for legal services in many areas of society. Many provide cost-effective representation from small firms or solo practice environments. They are passionate about their work. Our mission is to ensure that we continue to provide opportunities for these types of aspiring students.
Thomas Jefferson School of Law is consistently ranked as one of the most diverse law schools in the nation. The facts for the entering Fall 2014 class show how well we are achieving our diversity mission:
- We continue to increase our percentage of students of color. We have moved up from 43 percent in 2011 to 48 percent in the 2014 Spring entering class.
- Students range in age from 22 to 55, with the median age at 26 – up from 24 in 2011.
- In recent years, women have comprised approximately one-half of the student population. In recent graduating classes, women have made up more than one-half of the summa cum laude graduates.
- More than 28 percent of TJSL students are the first in their family to attend college and over 57 percent are the first in their family to attend a graduate school program.
- Students of color consistently represent between 30 to 35 percent of the student body. In the Fall 2014 entering class, over 50 percent of the students were students of color.
- More than 5 percent of the combined entering class self-identifies as LGBT.
- 15 students are either retired or active duty military.
- Students represent more than 43 different majors, from accounting, chemical engineering, math and religion.
- More than 16 percent attend part-time due to work, family, budget and/or other priorities.
- The student body at TJSL represents more than 23 countries, up from 19 in 2012.
Q. What do you say to people who ask, why should I go to Thomas Jefferson School of Law?
A. Since its inception, the mission of Thomas Jefferson School of Law has been to provide an outstanding legal education for a diverse student population in a collegial and supportive environment.
The law school has always had strong programs and faculty guidance to prepare our graduates to represent underserved publics that many of them come from. As the public’s unmet need for legal services grows, the law school is committed to providing our students with an outstanding legal education that has come to mean more than teaching legal reasoning and basic skills. We prepare our students to meet society’s legal needs through cost-effective and ethical representation, particularly in the small firm and solo practice environments that many of our graduates will enter.
Our diverse student population enables us to create a learning environment in which all of our students can more effectively acquire the academic and non-academic skills that they need to thrive in a rapidly changing legal profession, whatever their role on graduation.
Q. What is the vision for the school over the next five years? What do you hope to achieve?
A. By restructuring the debt and reducing occupancy costs by almost 60 percent, the school can continue its mission to be a school of opportunity for a diverse population of students. The long-term goal of the new administration is to continue doing a better job for our students in all ways and steadily raise the reputation of the law school, the quality of the education and, the success of our graduates.