News Column

EDMC reaches debt-restructuring deal with creditors

August 27, 2014

By John D. Oravecz, The Pittsburgh Tribune-Review



Aug. 27--Education Management Corp. has agreed to turn over an "overwhelming majority" of its ownership to creditors in a deal that would give the struggling operator of for-profit colleges a financial reprieve.

The proposed restructuring will reduce the company's debt to $400 million -- a decrease of about $1.1 billion -- and has been approved by more than 80 percent of debt holders.

"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 Edward H. West said in a statement Wednesday. "This new capital structure is critical to the future success of EDMC and part of our plan to transform the company."

Goldman Sachs and Providence Equity would see their ownership stakes of 43.2 percent and 32.4 percent, respectively, substantially reduced, said spokesman Tyler Gronbach.

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 Wells Fargo Securities in San Francisco, "Given the level of financial and potential regulatory risk facing the company as a result of its stressed capital structure, we view this proposed workout as a positive development for the shares despite the dramatic dilution."

EDMC shares fell 10.4 percent at noontime, down 16 cents to $1.38. The stock has declined 86 percent this year.

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 Goldman Sachs and Providence Equity to give up most of their equity stake in exchange.

EDMC had until Sept. 15 to strike a deal with its creditors before a waiver on loan covenant requirement expired and the company was required to file its annual report with regulators.

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 Pittsburgh, and recently targeted employee retirement plans among its cost cuts.

John D. Oravecz is a staff writer for Trib Total Media. He can be reached at 412-320-7882 or joravecz@tribweb.com.

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(c)2014 The Pittsburgh Tribune-Review (Greensburg, Pa.)

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Source: Pittsburgh Tribune-Review (PA)


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