UPDATE 1-Education Management restructuring to lower debt by $1.1 bln

Wed Aug 27, 2014 11:14am EDT

(Adds analyst comment; updates shares)

Aug 27 (Reuters) - Education Management Corp said it had agreed on a restructuring that would reduce its debt by about $1.1 billion and would seek a waiver of all financial covenants through June.

The for-profit education company said it will exchange about $1.5 billion of debt for $400 million of new debt and issue preferred equity convertible into common shares and warrants.

Shares of Education Management, which is backed by Goldman Sachs and Providence Equity Partners, fell as much as 22.7 percent to their lowest since October 2009, when they made their market debut at around $23.

"We view this proposed workout as a positive development for the shares despite the dramatic dilution," said Trace Urdan, an analyst with Wells Fargo Securities.

Existing shareholders will retain 4 percent of the outstanding stock after the conversion of the preferred shares and will receive warrants to buy an additional 5 percent, the company said.

All campuses and academic programs would continue without any interruption, the company said.

Education Management, among the largest providers of post-secondary education in North America, is the latest U.S. for-profit education provider to restructure its debt.

These companies have been rocked by falling enrollments and increased regulatory scrutiny resulting from their poor record of creating employable graduates.

Rival ITT Educational Services Inc said earlier in the month that it had amended its credit agreement to get waivers on certain debt covenants and defaults.

Education Management said 80 percent of its debt holders support the restructuring so far.

Given the obvious benefits to existing and former students of averting a financial crisis, regulators are expected to approve the transaction, Urdan said.

The company's shares recovered some of their losses and were down 10 percent at $1.38 in morning trade. Up to Tuesday's close, the stock had lost over 80 percent of its value so far this year.

(Reporting by Sweta Singh in Bangalore; Editing by Savio D'Souza and Sriraj Kalluvila)

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