Thomas Jefferson School of Law Gets Reprieve after Missed Bond Payme...

Thomas Jefferson School of Law is scrambling to restructure its debt after blowing a bond payment deadline.

The downtown San Diego private law school has disclosed in a financial filing that it failed to meet its entire debt obligations in June. But an agreement the school struck with creditors staves off doomsday at least until Oct. 17, while requiring it to come up with another $2 million.

School officials say they’re counting on reaching a restructuring deal with bondholders, who’ve agreed not to pursue legal remedies for the time being.

“As part of the negotiations, various potential structures and restructuring alternatives have been discussed,” the school said in a statement Tuesday evening following a report by the Above the Law blog about its borrowing woes.

“The parties have a mutual interest restructuring the law school’s debt in a way that will allow the school to remain in operation and prosper,” the statement said.

Stand-alone law schools, like Thomas Jefferson, have had a rougher time recovering from the last financial downturn and dealing with a broader decline among college graduates in demand for law degrees, according to financial analysts. Unattached to broader universities, independent schools lack the financial backstop of a bigger institution when cash runs out.

Between 2007 and 2013, applications to Thomas Jefferson fell 45% as its acceptance rate jumped to 81% from 45%, according to its figures. The school last year slashed teaching and administrative positions after missing its enrollment targets. It also hired a new dean, Thomas Guernsey.

While trying to escape a budget hole, the school has been literally digging. In 2011, it cut the ribbon on a 305,000 square-foot “luxurious” new building, whose $90 million construction became mired in litigation.

The school last year enrolled about 1,000 students and employed 42 full-time faculty members — with an operating budget of around $40 million, according to financial and enrollment records.

In October, Thomas Jefferson’s credit rating was downgraded two notches to B+ — junk-bond status — with a negative outlook.

A December 2013 credit-rating analysis by Standard & Poor’s Ratings Services sized up the school’s predicament:

We believe the law school’s large amount of debt and very high debt service, which resulted from the construction of a new facility that the school put into service during 2011, are credit weaknesses. In our opinion, there is also enrollment risk given the declining number of law students nationally and recent weakness in headcount that will likely compress operating margins, particularly since the school has no track record of fundraising.