Foreclosure Fear Plunges USIU Into Chapter 11

Fearing foreclosure of a portion of the campus, administrators at United States International University revealed Friday that they have filed for bankruptcy and plan an “economic reorganization” to avoid what one called the “destruction” of the school.

University attorney David Osias said the school filed for protection under Chapter 11 after Mission Federal Credit Union threatened to foreclose on 70 acres of the 200-acre Scripps Ranch campus Friday morning.

“They (Mission Federal) declined to give us a sufficient extension to allow the university time to pay off its debts, without jeopardizing its assets,” Osias said.

Kenneth McLennan, acting president of the university, who was appointed to his interim capacity in January, said Friday that the school will conduct a “thorough overview” of all phases of its operations.

McLennan said the school will pay particular attention to its Division I athletic program and its acclaimed arts curricula, perhaps looking to those as the first to be cut.

“To what degree can we carry those on in an austere economic climate?” McLennan said. “We’ll have to look at changes.”

McLennan said no changes would take place until extensive meetings with faculty and student organizations, as well as board members, have taken place. But he left little doubt that extracurricular programs will be among the first affected.

USIU officials say the school’s debt is close to $14 million. An additional debt involving its London campus--which is for sale--is about $8.5 million. The school recently sold KUSI-TV (Channel 51), which produced about $10 million. At the time of the sale, in February, McLennan said the debts were closer to $25 million.

Osias said the sale of the London campus should bring an estimated $60 million, which would lift the school out of its financial morass and place it on the positive side of the ledger. Its most prized asset is the $41-million campus on Pomerado Road in Scripps Ranch.

Richard Hartley, senior vice president of Mission Federal Credit Union, said Friday that he was “stunned” that the school filed for bankruptcy.

“We’ve been lending to the university in one form or another since 1970,” Hartley said. “We were even helping them with payroll loans, for goodness’ sakes.”

Hartley said the school has been guilty of “broken promises and missed deadlines for years. We’ve heard it all. When their loans were due and payable, we heard every story and every excuse under the sun.”

Nevertheless, Hartley said, the credit union remained committed to helping the school survive and “brought them to the table” for a Thursday meeting that he said produced a “shocking” revelation.

“We met a new player, in the form of this professional bankruptcy lawyer (David Osias),” Hartley said. “The best way to explain my feelings on this is to give you an analogy: If my pet is dying, I take it to a veterinarian--not a taxidermist.”

Hartley said bankruptcy affords the school “no guarantee of coming out intact. If you sense anger in my voice, I think it’s because the risk they took was unnecessary. And we at the credit union have been emotionally involved in trying to help them make it. Now I’m not sure they will.”

Hartley said his concern was not based on the credit union losing its money.

“We’re secured 10 times beyond what they owe us,” he said.

Osias said the credit union had given the school until April 9 to pay off about $7 million in accumulated debt, which he wasn’t sure it could do.

“If the amount wasn’t paid by then, they were going to foreclose on the entire campus,” he said. “This is what we were presented at 3:30 Thursday afternoon. Although we think we can pay off all those creditors, we’re not certain we can do it by April 9.

“And we didn’t think it prudent to risk the entire campus. We asked them to give us time to think about it, at least until Wednesday morning (Dec. 26), but they declined to give us even that luxury. We had no choice left but to file for Chapter 11.”

McLennan said USIU has 1,800 students on its San Diego campus and 3,300 worldwide. It operates campuses in Nairobi, Kenya, and Mexico City--which it leases--in addition to its London campus and a learning center in Japan.

A recently proposed partnership with the Teikyo University Group of Japan, which Osias said would constitute “an economic reorganization of its own” and solve the school’s financial problems, is in limbo.

McLennan conceded that the school’s financial problems--in particular, suggested cuts in arts and sports programs--will have a “dampening effect” on morale. He said the school maintains full academic scholarships for about 200 students in arts and sports.

“We’re looking to continue our commitment to them as far as scholarships, so that they continue their academic activity,” he said. “But I’m sure that the more gifted ones will want to go on to other schools so that they can participate in whatever their particular specialty is.”

One of the school’s more gifted students is John Barrowman, who, as a junior spending a year at the London campus, auditioned and won a role in “Anything Goes,” which led to a part in the hit play “Miss Saigon.”

Drew Tombrello, a professor of theater at the school, said Friday that he felt the reorganization of its finances was a welcome change and one that would enhance, rather than weaken, its arts program.

“We have been assured that our programs will stay intact as long as we can show how the cost effectiveness will work,” Tombrello said. “We spent too much money, and our program has a lot of fat. I’m glad to see all of that go.”

McLennan said the arts division spent too much on certain projects, an assessment with which Tombrello agreed. He said a production of “West Side Story” had cost more than $80,000, which he labeled “crazy.”

Tombrello blamed most of the school’s problems on previous president William Rust, who governed for 37 years, and credited McLennan with doing a good job.

McLennan, a former four-star general in the Marine Corps, said Friday that the school essentially has no endowment and no mechanism for soliciting alumni contributions. He said the university makes its money primarily through the $15,000 room-and-board fees that students pay each year.

Osias said the “destruction” of the university might have come about had the school not sought Chapter 11. Now, he said, he’s most concerned with the message the faculty and students glean from the meaning of bankruptcy.

“If the wrong kind of message gets out, it will be self-defeating,” he said. “It could seal the fate of the university and do so unfairly. Because we are not insolvent. I hope people realize that.”