The proposed restructuring will reduce the company's debt to
"We believe this plan, which will convert a significant portion of our debt into equity and result in a vastly improved capital structure with lower interest expense and extended maturities, is in the best interests of all stakeholders, most importantly our students," CEO
Creditors, led by investment firm KKR, will be given preferred stock in the company that can be converted to common shares over time. Preferred shareholders will have a measure of control -- the right to appoint two directors to EDMC's board of directors, according to a securities filing.
EDMC said the deal still needs shareholder and regulatory approval, which EDMC expects to complete in 2015. It has been approved by the company's board, and the company is seeking support from the remaining lenders and bondholders.
Both preferred directors will sit on a committee, along with two current directors, to supervise the process of gaining approval of the dead by regulators, the securities filing said.
Existing shareholders would retain 4 percent of the company's common stock based on the amount of preferred stock to be converted. Shareholders also would receive rights to purchase 5 percent in additional shares.
"The deal would leave the company on a much more sound financial footing as it seeks to rightsize its business around a smaller revenue base," said Trace A. Urdan, analyst at
EDMC shares fell 10.4 percent at noontime, down
The for-profit education company has been negotiating for months to restructure its debt on which it broke loan covenants. Its lenders, led by KKR, had pushed for
EDMC had until
The debt is one of many challenges for EDMC. The company is headed for its third consecutive year of declining revenue and faces a potentially multibillion-dollar federal lawsuit over recruiting practices. Since last year, it has slashed more than 600 employees nationwide, nearly half of them in
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