The College of New Rochelle

September 20, 2019

Non-profit The College of New Rochelle filed for bankruptcy, an unfortunate step for a school founded in 1898 and meant to serve underprivileged and first-generational college students. Sadly, the school’s problems stem from a rogue Controller who (i) failed to pay payroll taxes over a two year period, (ii) misappropriated government grant money, (iii) used endowment funds in an unauthorized manner, (iv) stiffed creditors with all kinds of schemes, and (v) concealed the true nature of the school’s financial condition by, among other things, misrepresenting financial health and issuing false financial statements. Ouch.

While Mr. Incompetent Controller pled guilty to fraud and failure to pay payroll taxes, that, unfortunately, does not cure the financial situation for the school, which finds itself “with over $31 million in previously undisclosed debts.” As for the Controller, he was sentenced to three years in federal prison, a $25k fine, and ordered to pay restitution of no less than $13.2mm — which there isn’t a chance in hell he’ll be able to do.

As if this isn’t horrible enough already, the school’s endowment is too small and the school’s enrollment revenue is too inadequate to address this massive liability. Consequently, the school is now forced to wind-down to pay off its debts. As a practical matter, what does this mean? Well, first, the school had to figure out a solution for its students. It did so via a “teach-out agreement” with a neighboring school, pursuant to which the students were able to continue their education and secure credit. Second, the school owns its real estate and has hired a real estate broker to pursue sales thereof. Those sales will go a long way towards paying the past due taxes owed and secured debt. The company has a commitment for a $4mm DIP credit facility to fund the cases.

What a sad social commentary: one dude’s malfeasance tore down 100+ years of history. Tragic.

• Jurisdiction: S.D. of New York (Judge Drain)

• Capital Structure: $31.9mm secured loan (Citizens Bank/DASNY), $2mm secured loan (Carney Family Charitable Foundation), ~$2.4mm secured loan (Key Bank NA), ~$14mm bond debt (Industrial Bonds, UMB Bank NA, trustee)

• Professionals:

  • Legal: Cullen and Dykman LLP (Matthew Roseman, Bonnie Pollack, Elizabeth Aboulafia, Sophia Hepheastou)

  • Financial Advisor/CRO: Getzler Henrich & Associates LLC (Herbert Weil, Mark Podgainy)

  • Real Estate Broker: A&G Realty Partners LLC/B6

  • Claims Agent: KCC (*click on the link above for free docket access)

• Other Parties in Interest:

  • Key Bank NA

    • Legal: Nolan Heller Kauffman LLP (Francis Berman)

  • DIP Lender ($4mm): Summit Investment Management LLC

    • Legal: Kilpatrick Townsend & Stockton LLP (Todd Meyers, David Posner, Paul Rosenblatt)