Averett plans $18.15M sale-leaseback of North Campus

Averett University is working on a sale and leaseback deal for its North Campus, which includes the private university’s E. Stuart James Grant Convocation and Athletic Center and its football, baseball, softball, soccer and lacrosse fields, as well as classrooms and other facilities.

Before it can make the deal, however, Averett needs bondholders of about $15 million in debt to waive a covenant preventing the sale of the property, according to a consent solicitation statement filed by the university Monday. The bonds were taken out in 2017 to finance debt repayment and construction.

Convincing the bondholders to allow the sale-leaseback is part of the university’s efforts  to weather a financial crisis that first came to light in summer 2024 when school leaders announced furloughs and other cost-cutting measures. In March, Averett filed a federal lawsuit alleging that former Averett Chief Financial Officer Donald Aungst and an investment firm the university hired, Arizona-based Global Strategic Investment Solutions, had “surreptitiously” drained nearly $20 million from the university’s endowment to cover budget deficits.

In the filing, Averett noted that “regional investors” — which go unnamed save for the Danvile Regional Foundation — may buy the North Campus for $18.15 million if Averett is able to receive approval from at least 50% of the bondholders. With the deal, the university would receive $6.75 million at close, $6.75 million in the second year and $4.65 million in year three, according to an email from Cassie Jones, Averett’s vice president for marketing and communications. 

Averett will continue to use the property and will pay rent equal to a 4.5% annual return on the investors’ purchase price. The lease will last for 10 years, with an option to extend it for another 10-year period.

“The sale and leaseback of the Averett University E. Stuart James Grant North Campus athletic facilities provides us with additional financial flexibility as we work to position ourselves for long-term sustainability while still ensuring a seamless experience for our student-athletes and campus community,” Averett President Thomas H. Powell said in a statement to Virginia Business Tuesday. “This arrangement would keep the North Campus property under local control while providing support in a responsible way to a regional institution that is a major economic asset.”

Additionally, in the consent solicitation statement, Averett asks bondholders to waive “the covenant defaults with respect to the noncompliance by the university with the debt service coverage ratio” and “the Audit Covenant Default with respect to noncompliance.”

Averett has never missed a payment on the bonds. However, the university is technically in default due to failing to comply with the debt service coverage ratio and the liquidity covenant, according to a June 27 filing by U.S. Bank Trust, a trustee of Averett’s bonds, posted on the Electronic Municipal Market Access website.

The 2017 agreement requires that Averett maintain a debt service coverage ratio of more than 1.00. For Fiscal Year 2025, Averett’s ratio was -04.46.

The university is also in default because it failed to file an official audited financial report for fiscal year 2024 by a Dec. 1 deadline. On May 30, Averett submitted a draft version of the report.

A waiver would allow the university’s auditor to issue a Final Audited Financial Statement for FY 2024 without “treating the bonds as if they were to be accelerated as current debt payable by the University in full, even though the bondholders have not accelerated the debt, or expressed any interest in accelerating the bonds to the bond trustee or the university.”

Averett noted in the filing that it was unable to file an audited financial statement with the Department of Education by a March 30 deadline. The Southern Association of Colleges and Schools Commission on Colleges, an institutional accreditor, also required a comprehensive report by July 15, according to the consent solicitation statement. “Failure to comply with such deadlines for the delivery of the Final Audited Financial Statements Report for Fiscal Year 2024 could have a material adverse impact on the University because of the economic resources and the oversight of the University’s operations over which DOE and SACSCOC have responsibility,” Averett stated in the filing.

In the document, the university stated that it expects to receive the consent of American Century Investment Management, a Missouri-based asset manager that holds about 25% of Averett’s bonds, to all requested consents.

The university noted in the statement that it will pay 0.25 cents per $1,000 of the principal amount of each bond to each bondholder who grants requested consents. If the university receives consent from more than 50% of bondholders, it will set up a reserve fund equal to one year’s worth of interest
payments on the bonds. Bondholders will also receive a security interest on the second and third payments the university expects to receive from the sale and leaseback transaction.

On Aug. 6, a judge ordered Averett University to hash out its differences with its former investment firm, GSIS, and the university’s former chief financial officer through arbitration. GSIS denies the allegations. Last week, Francisco E. Mundaca, the Maryland-based attorney representing Aungst, said in a statement that the former CFO may be considering his own court action over the dispute. “We are now evaluating all available legal remedies to protect Mr. Aungst’s reputation and hold accountable those who have damaged his distinguished 36-year career in higher education finance,” Mundaca wrote in an email.