(Adds analyst comment; updates shares)
Aug 27 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
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
(Reporting by Sweta Singh in Bangalore; Editing by Savio
D'Souza and Sriraj Kalluvila)