* Corinthian says Education Dept. calculated a score of 0.9
* Minimum threshold needed for Title IV student loan program
* Company may be forced to issue letter of credit if score
* Shares down as much as 10 pct
By Bijoy Anandoth Koyitty
Nov 5 Corinthian Colleges Inc said the
U.S. Department of Education gave it a financial responsibility
score that falls below the minimum requirement the company
needs to allow its students access to federal student loans.
Shares of the company, which has a market value of $235
million, fell nearly 10 percent to $2.45 on the Nasdaq on
Financial responsibility ratios - measured by equity value,
net income and cash reserves - are used by the department to
determine whether an educational institution has the financial
resources to participate in Title IV funding, a type of student
Corinthian said the department calculated its composite
score for the 2011 financial year as 0.9, below the minimum
threshold of 1.0 needed for the Title IV program.
However, Corinthian said its calculations showed it had a
composite score of 2.1 for 2011, excluding a $203.6 million
goodwill impairment charge it took in the year.
Corinthian, which derived almost 85 percent of its revenue
from Title IV for the year ended June 30, has said it is
focusing on developing other federal sources of revenue.
Enrollments at Corinthian have taken a hit since the U.S.
government started a crackdown on for-profit colleges for high
Corinthian, parent of Everest College, said the discrepancy
in the score rose due to the Education Department's position
regarding treatment of the goodwill impairment charge and
certain other items.
If the company is unable to convince the department to
reconsider its score, Corinthian will be forced to post a letter
of credit with the department equivalent to at least $175.7
million, depending on the level of monitoring it is willing to
The company said there was no assurance that it would be
able to meet these obligations, failing which its 92,000
students could lose access to federal student aid.
"If they have to post a letter of credit ... it is going to
be a very tight liquidity situation for the company," said PAA
Research analyst Bradley Safalow, who recommends investors sell
or short the stock.
"They have been doing everything possible, between selling
assets, selling student loan receivables, and creating a quasi
private student loan arrangement, to preserve their working
capital and enhance liquidity," he said.
"In our view, they are running out of levers to pull."
Corinthian said in May it would sell four Everest campuses
and shut down three campuses to reduce debt default rates. In
June, it said it would sell two of its WyoTech campuses over the
next 12 months.
Corinthian also said a failure to maintain at least a 1.5
score could constitute a default under the terms of its credit
The company said its preliminary calculations for fiscal
2012, ended June 30, indicate a score of 1.5 and said it has
asked the department to consider this fiscal year for its
financial responsibility score.
The for-profit college operator is yet to file its
compliance audits and financial statements, which it expects to
do within "several weeks", and said the department has agreed to
an expedited review of the submission.
However, analyst Safalow said if the government took a
different view than the company's calculations, Corinthian could
still end up having to post a letter of credit.
Santa Ana, California-based Corinthian said officials from
the Education Department have agreed to meet and discuss the
issues with the company. It is also in discussions with its