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June 19, 2014 12:30 PM
Education Management Close to Obtaining Waiver From Lenders
By SHASHA DAI
Education Management Corp ., a private equity-backed, for-profit college operator, is close to obtaining a waiver from its lenders that will buy time for the company’s efforts to avoid defaulting on debt, a majority of which the company said resulted from its 2006 buyout, said a person familiar with the matter.
The Pittsburgh company–a Nasdaq Stock Market -listed business that is backed in part by Goldman Sachs Group .’s GS Capital Partners, Providence Equity Partners and Leeds Equity Partners–has been negotiating with lenders led by Bank of America Corp . and U.S. Bancorp to obtain a waiver of certain covenants in its loan agreements ahead of a June 30 deadline, this person said.
Negotiations remain fluid, and an agreement may not be reached, the person added.
The waiver, if obtained, will allow Education Management to operate through early September, when the company is scheduled to report financial results for the fourth quarter and fiscal 2014, said the person with knowledge of the situation.
Related Information The waiver will cover covenants, or provisions of loan agreements designed to protect lenders, including a maximum total leverage ratio and a minimum interest coverage ratio.
To date, Education Management has been in compliance with the covenants. Because of deteriorating operating results, the company said in its most recent quarterly financial report that it believed it would likely not satisfy those covenant compliance ratios for the 12 months ending June 30.
“A violation of these covenants, unless waived by the lenders or otherwise cured, would constitute an event of default,” the company said in the quarterly report, dated May 8, filed with the Securities and Exchange Commission . A default would allow lenders to demand full payment and to stop making new loans to the company.
As of March 31, Education Management had $1.3 billion of debt outstanding.
Speaking during a May conference call to discuss the quarterly financial results, Education Management executives said the company had retained financial advisers to assist it with the debt restructuring.