INSIDE THE DEAL TO CONVERT A LARGE FOR-PROFIT COLLEGE INTO A NONPROFIT: The Dream Center Foundation last month announced that it plans to purchase the majority of campuses owned by the struggling Education Management Corporation — a move that tees up what would be one of the largest ever conversions of a for-profit college chain into nonprofit schools. A copy of the full purchase agreement, which was obtained by POLITICO under a public records request, sheds new light on the complex transaction that will have to be approved by the Education Department.
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— A $60 million price tag: The Dream Center, based in Los Angeles, didn’t disclose earlier how much it plans to pay to acquire EDMC-owned South University, Argosy University and most of the Art Institutes. But the documents show that the nonprofit foundation will pay $50 million in cash upfront for the schools, with two additional $5.25 million payments after six months and a year. The deal is primarily being financed by the Najafi Companies, a private equity firm.
— The sale hinges on approval from state regulators, accreditors — and most significantly, the Education Department. That agency’s decision could provide an early test for how the Trump administration will approach such controversial for-profit to nonprofit college conversions. The Obama administration sought to crack down on such arrangements, siding with critics of the for-profit college industry who viewed the conversions as a means for companies to skirt regulations. The deal is also contingent on the Education Department confirming that it would treat the colleges as nonprofit entities (rather than for-profit schools) with “no required letter of credit,” according to a letter sent by the head of EDMC-owned South University to Florida regulators. The Obama administration last year required the new owners of the University of Phoenix to set aside millions of dollars in collateral as a condition for approval of that deal.
— A look at the structure of the deal: The Dream Center Foundation has set up a stand-alone entity, Dream Center Education Holdings, which will directly own the campuses. Randall Barton, the foundation’s managing director, will become the executive chairman of the holding company’s seven-member board of directors. Brent Richardson, who previously was executive chairman of Grand Canyon University, will be president and co-chairman of the new company.
— EDMC multi-state settlement terms continue: The purchase agreement also shows that the Dream Center has agreed to abide by the terms of a settlement reached in 2015 between EDMC and 39 state attorneys general, who were investigating the company’s recruitment practices. That includes making single-page disclosures to students about their post-graduation job prospects and potential debt loads.
— Aiming for the summer: The documents show that the sale is expected to close by the beginning of August, though the agreement also has a more formal deadline of Dec. 5.