A $250 million pledge to Kentucky college dissolves as a deal collapses

New York Times News ServiceSeptember 11, 2013 

MICHAEL BALDERAS

When tiny Centre College, in Danville, Ky., announced in July that it had received a $250 million donation, the largest outright gift ever made to a liberal arts college, it left out a small detail.

The donor — the A. Eugene Brockman Charitable Trust — did not yet have the money.

On Monday, the college said the gift had been withdrawn.

The gift, it turns out, had been contingent upon a “significant capital market event,” Centre said in a statement.

“In retrospect, we might have put a big asterisk on this thing, but no one had any inkling that this would come about,” John Roush, the president of Centre College, said in an interview.

The “significant capital market event” was a scuttled $3.4 billion loan deal involving Reynolds & Reynolds, a large privately held company that provides software and services to car dealers. The Brockman trust has ties to Texas businessman Robert T. Brockman, the chief executive of Reynolds & Reynolds, who until recently served as chairman of Centre’s board of trustees and attended the college for two years. A Reynolds & Reynolds spokesman, Thomas Schwartz, confirmed that the company canceled the transaction, which would have financed the donation to Centre.

A driving force behind Brockman’s gift was the red-hot market for corporate loans. In July, Reynolds & Reynolds, seeking to capitalize on record low interest rates and yield-starved investors, initiated the deal to raise $3.4 billion in new loans. The company said it would use the proceeds from the transaction to make a large payout to its owners. Among its biggest shareholders was the Brockman trust.

The credit ratings agency Moody’s took a dim view of the deal, downgrading Reynolds & Reynolds’ credit rating because it would saddle the company, which is valued at about $5 billion, with too much debt.

Nevertheless, investors clamored for Reynolds & Reynolds’ loans and received their allocations about a month ago. But the deal collapsed last week, and investors were told to unwind the trades. Matthew Fuller, a corporate loan analyst at LCD, a division of S&P Capital IQ, said that it was rare to see a loan deal withdrawn weeks after it had begun trading.

“For a deal of this size to launch to strong market conditions, receive significant investor demand and trade openly in the aftermarket for a month, and then be canceled, is highly unusual,” Fuller said.

Schwartz, the Reynolds & Reynolds spokesman, confirmed that the company had pulled the deal but declined to explain why. He added that the company was confident that it could return to the debt markets at any time. A spokeswoman for Deutsche Bank, which underwrote the loans, declined to comment.

The gift to Centre came at a time when universities have been the beneficiaries of extraordinary largess from philanthropists. Last week, real estate developer Stephen M. Ross unveiled a $200 million gift to the University of Michigan. Earlier this year, Mayor Michael R. Bloomberg of New York City announced a $350 million pledge to Johns Hopkins University, and financier Ronald O. Perelman pledged $100 million to Columbia University.

The Brockman pledge would have been used to create 160 scholarships at Centre — 40 a year beginning in the fall of 2014 — for students planning to study natural sciences, computational sciences or economics. At $250 million, the gift exceeded the school’s $240 million endowment. With 1,370 students, about half from Kentucky, Centre is perhaps best known outside the state as the host of two vice-presidential debates, in 2000 and 2012.

A. Eugene Brockman, who died in 1986, was connected to the college only through his son, Robert Brockman, a student at Centre for two years before transferring to the University of Florida, where he obtained a business degree.

After stints at the Ford Motor Co. and IBM, Brockman started Universal Computer Systems, a provider of computer systems to auto dealerships. In 2006, Universal Computer Systems acquired Reynolds & Reynolds for about $2.8 billion and merged the two companies under the Reynolds & Reynolds brand.

Brockman, who lives in Houston, has been a major supporter of Centre, serving as chairman of its board from 2008 until earlier this year. In 2009, the Brockman Trust gave $19.5 million to the college for campus housing. Brockman also serves as a trustee at Rice University and Baylor College of Medicine.

“It is a disappointing day,” Roush said of the pulled gift. “We had a lot of people who have poured mountains of time into this, and my greatest disappointment is that there are a lot of students out there who won’t be able to get a Centre College education. But our future is still exceedingly bright.”

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