ANDERSON — Madison Park Church of God officials say the church will file for a voluntary Chapter 11 bankruptcy reorganization, after coming up short for a $5.8 million balloon payment toward a loan it took out in 2007.
The initial loan was for nearly $17.5 million, to develop over 200 acres near exit 226 on Interstate 69, where the church had moved from Scatterfield Road. The money was used to fund construction of the church’s community life center, city streets, water delivery and storm water management infrastructure, said Senior Pastor Jim Lyon.
The loan was financed via a bond issue managed by a California firm, and called for $95,000 monthly payments, which escalated in the years leading up to a lump-sum balloon payment of nearly $6 million, due July 31, 2012.
”At the time, given our assets, the balloon payment seemed entirely possible,” Lyon said. The church planned to make the payment by selling off property it owns in Anderson — then valued at roughly $16 million, he said — including its old worship center, 2604 N. Scatterfield Road, and some of the undeveloped acreage around the new worship center, 6607 Providence Drive.
”The plans were in place for this to work,” said Clark Simpson, vice chair of the church’s board of elders. “But then, the economic conditions became a problem.”
Soon after the loan was issued, the U.S. economy began a nosedive into what’s now been dubbed the Great Recession. Unemployment soared to roughly 10 percent by late 2009 and real estate values declined. The value of the Madison Park Church properties was cut roughly in half, Simpson said, and none of the properties sold.
The church continued to make monthly payments, Lyon said, sometimes by cutting the budget for its missions and deferring maintenance. He said the church also reduced staff and benefits and froze some employees’ wages.
But that $5.8 million balloon payment was still looming. And in the year or so leading up to the due date, “We knew we weren’t going to be able to pay,” Lyon said.
The church tried raising money, establishing a committee from its roughly 3,000-family congregation to discuss debt restructuring and reaching out to its lenders to discuss options.
Last month, church officials report, Madison Park entered into an agreement with its lenders, where it would pay back the loan over the next 25 years — extending only a year past its initial payback date — via a Chapter 11 debt restructure, which it anticipates filing next month.
The new repayment plan is not dependent on the sale of the church’s properties. But if they do sell, that money could be applied toward paying down the loan.
“We didn’t do this to get out of debt or have it forgiven,” Simpson said, “But to get into a plan that assures all bond holders would be taken care of.”
Madison Park’s story is hardly new.
According to “Bankrupting the Faith,” a February research paper out of the University of Illinois College of Law and published in the Missouri Law Review, U.S. religious institutions filed for more than 500 petitions under Chapter 11 between 2006 and 2011, many because of outstanding debt, such as a mortgage taken out on real property.
“It’s a recurring thing,” said John Ledbetter, an accounting professor at Ball State University. “When the economy’s good, people, including businesses and church congregations, make plans for construction or expansion.”
The problem arises when loans come due and the borrowers can’t pay, he said. For example, Anderson’s Lindberg Road Church of Christ, which could now be moving from its building at 2625 Lindberg Road, after a bankruptcy court denied reorganization on a loan the church took out the same year as Madison Park.
As far as his church is concerned, Lyon said the future involves some belt-tightening, but that likely won’t impact the new worship center, staff, programs or contributions to Church of God Ministries, which operates worldwide, and whose roughly 2,200 U.S. and Canadian congregations are headquartered in Anderson.
“The church exists to make a difference in the world around it,” he said. “That involves our ministry and our missions.”
Lyon said the debt restructuring did not spur his departure from the church. Pending confirmation, he will leave at the end of the month to become general director-designate of the Church of God Ministries.
“I would never have left if the restructure hadn’t gone through,” he said, “I’m not leaving because of it. Actually, the debt would have kept me there.”
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