Falwell’s Liberty University Doubles Debt With $100 Million Sale

Liberty University, started in 1971 by the Reverend Jerry Falwell Sr., borrowed $100 million for an expansion of its Lynchburg, Virginia, campus, almost doubling its long-term debt.

The university, which has grown into one of the largest private colleges in the U.S. by increasing online enrollment, will use the money to help finance $225.2 million of capital projects planned around the campus in the next five years, according to sale documents. Work will include a library named for its founder, a baseball stadium and a school of health sciences, according to the documents distributed to investors.

Falwell was a Baptist minister who used television broadcasts to bring his message to millions. He started the Moral Majority in 1979 to help get the religious right more politically involved and send Ronald Reagan to the White House. After the evangelical minister died in 2007, his son, Jerry L. Falwell Jr., became chancellor and president of the school.

“The vision for the university in the early years was to be for conservative evangelical students what Notre Dame is for Catholics and Brigham Young is for Mormons,” Falwell said yesterday by telephone.

“A lot of people back then said it couldn’t be done but he was just determined to make that happen,” Falwell said, referring to his father’s early work to build the institution. “I wouldn’t say we’re equal to Notre Dame yet, but we’re close.”

Tax-Exemption Challenges

The university, which offers tenure only to its law faculty, has faced challenges to its tax-exempt status because of the “distinct political interests and religious activities of the campus community,” Moody’s Investors Service said in a Jan. 9 report. The company rates the school’s credit A1, its fifth-highest grade.

Enrollment has more than doubled from fiscal 2007 to last year, reaching almost 77,800 students, driven largely by a more-than threefold gain in online enrollment, to about 64,900, bond documents show. The school will have about $228 million of debt after the sale of the taxable bonds today.

The callable debt, which pays a coupon rate of 5.1 percent and matures in March 2042, was priced to yield 215 basis points more than Treasury securities maturing in August 2041, or about 5.09 percent, according to data compiled by Bloomberg. A basis point is 0.01 percentage point. Taxable 30-year AAA rated municipal bonds were yielding about 5.9 percent yesterday, the data show.

“The university’s strongly religious character is both a strength and a challenge,” Karen Kedem, a Moody’s analyst, said in the report. While it attracts “a growing portion of those students seeking this type of experience,” it has limited appeal to the broader population, Kedem said.

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