Baltimore-based Fairfax Savings said yesterday that it has settled its long-running legal battle with the remains of the Rev. Jim Bakker's PTL Ministries with an agreement by the the evangelist who bought Bakker's Heritage USA complex from a bankruptcy trustee to repay a $12 million loan from Fairfax to PTL.
Fairfax said San Diego evangelist Morris Cerullo agreed Friday to pay $11.9 million in principal and $1.2 million in delinquent interest on the loan.
The settlement with Fairfax, which has nine branches and assets of $500 million, is the final step in Mr. Cerullo's bid to buy the 2,200-acre Heritage USA property in Fort Mill, S.C., about 20 minutes from Charlotte, N.C.
"With the sensitivity over banks and thrifts, we thought it was important to let people know we didn't take a loss," said Robert Hyatt, Fairfax's vice president and director of marketing.
Fairfax didn't take a loss on the principal of the loan, but it did settle for substantially less interest than it was entitled to. Fairfax had filed a petition to foreclose on Heritage USA's two hotels and other assets in the fall of 1989, claiming that back interest had brought PTL's tab to almost $17 million.
Interest since then would have pushed PTL's nominal debt even higher.
Fairfax has taken loan-loss reserves in recent years that former employees have said were designed to protect the Baltimore thrift from any losses on the PTL loan, so settling for less than the amount of interest Fairfax wanted isn't likely to hurt the thrift.
Fairfax has never publicly confirmed or denied whether any reserves were set aside specifically for losses on the PTL loans, a $10 million loan in November 1984 and a $2 million loan in early 1985.
When the loans were made, PTL was losing money heavily and beginning to lapse into the kind of open abuses of donors' contributions that earned Bakker a 45-year term in federal prison.
The ministry agreed to pay an interest rate of 15.25 percent on the loans after trying unsuccessfully for months to arrange loans with other banks and thrifts. The prime rate at the time of the $10 million loan was 11 percent at Maryland National Bank.
When PTL collapsed in 1987 after disclosure of Bakker's financial abuses and his 1980 sexual encounter with former church secretary Jessica Hahn, Fairfax was the ministry's largest secured creditor. The loans remained unpaid until now as bankruptcy trustees struggled to unload PTL's assets.