The money-losing Education Management Corp, broke their loan covenants on $1.3 billion in debt and have been trying to work out a restructuring plan. The creditors voted on Thursday to offer EDMC a plan where most of the equity will be transferred to the creditor over time. If EDMC fails to agree, Government loans could stop within days.
http://nypost.com/2014/08/22/lenders-to-offer-a-lifeline-to-art-institutes/
Actually, to be completely transparent - Ai is the only profitable brand that EDMC has. It's the other three that are pulling the ship down.
They will get everything. Ai is just talked about most because it is the biggest part of the pie. They paid for a whole pie, not a slice.
Not true. They will effectively control all of EDMC if they get their way.
Where did you read that?
One thing everyone might be missing here - According to what I read here - Creditors only want Ai, not SOuth, Brown Mackie, Argosy...
In America, stat college is also considered the best possible education. For-Profit is the college of last resort as well. C and D students need to go somewhere.
In China state college is consider the best possible education. Private college is the case of last resort. The average cost for college in China is $400 to $2,200 a year in tuition (Includes instruction, room/board, and meals. EDMC wants to compete? Good luck with that.
EDMC has no concept on international. I heard the international dept was doing well to bring students to Ai, but the Director quit and now there is no guidance at all. Online will not work overseas, the Ai reputation is shot!!! China will never go for this brand.
Online wants to go international? Where you hear that? I do know about developing programs for high school and also mini courses that would offer a bunch of various courses of varying length.
"Kravis has been called an "asset stripper" That is ironic since AI students end up as strippers! https://www.youtube.com/watch?v=v6p6aScF9EU
EDMC is Too Big To Fail!.....apparently not.
If online is doing well, it's conceivable they would break it out of the rest of the pack an keep it running. Online has one big problem. There plan to expand is critically flawed. They want to go global into other countries with lots of people like China. The problem is, in most of these other countries education is free. Or they are so poor they cant even afford an internet connection.
Don' hold your breath. Any company that is known as an asset stripper, probably dose that all the time. That article you posted reads like a marketing piece.
Although in some articles online Kravis may have been called an "asset stripper" and a "job destroyer" with all due respect that's just too simplistic. if you do some more research you will find out much more information on his company, their holdings, what they do. I'm not a business person, so all you business people, fire away - But it seems to me Kravis loaned money to EDMC, EDMC can't pay it back,now Kravis is looking to get his money back with interest. I'm sure he's looking into all kinds of options. I've heard online is actually holding its own, forging ahead with new initiatives and long term plans, trying to resolve some of the issues facing it. I personally don't believe in the brand - it's too expensive and any CC or Univ that offered online degrees would blow it out of the water unless Ais curriculum set itself apart with more of an affordable trade school offering. But who knows, maybe Kravis will keep Ai, cut Argosy, combine Mackie Brown and South? Read this, come to your own conclusions http://www.bloomberg.com/news/2014-06-17/kravis-still-shaking-wall-street-steers-kkr-into-lending.html
Blame the messeger for what?
Anonymous29903, don't blame the messenger.
That's right, Dahn. Maybe enough jobs will be lost so that the community college can come through with a much-anticipated full-time gig. Don't you want all these jobs to be lost, as seemingly all for-profit schools are evil in your eyes?
EDMC Just Got Owned, Let the raping and pillaging begin! Karma is a bitch and its payback time for all the students who have been burned with over priced degrees. I will be dancing on their grave.
FYI: Kravis has been called an "asset stripper" and a "job destroyer."
'Riding this out' does not appear to be an option. DOE is reviewing their books right now. As you mention, the numbers don't add up. Something has to happen soon or a Corinthian style collapse is coming.
"The Art Institutes "brand" is worth 1.5 bn in annual sales." Yes, but that's sales not profit. In terms of profit, the brand is not worth more than any other brand in the industry, and in a bankruptcy, the whatever brand value may exist will quickly fall to near zero.
The Art Institutes "brand" is worth 1.5 bn in annual sales. The "brand" won't go away- it's worth too much. It will change, consolidate (shrink)but, despite the impairment charges taken over the last year, it is still a viable entity. Any transfer of ownership will need to be approved by the Dept of Ed, accrediting bodies and the various state agencies involved, but, although it would be complicated, no one, particularly the Dept. of Ed and the Accreditors want to see the school fold. Everyone has a lot of incentive to keep it going. It's clear that the KKR has lost confidence in the management team and the Board of Directors, and are moving to try and secure their interests. The current assets (as of March) are listed as 1.5Bn on the balance sheet, so, if KKR wants to put it into bankruptcy they certainly stand the possibility of recovering something. If they ride this out, EDMC doesn't appear to be in a position to service the looming debt payments. (1.3 Bn due next summer- 250 mill on hand.) No, the school is better off in a transfer to KKR, at least for now.
If EDMC files chapter 11, then the creditors get basically nothing, just like everyone else. The creditors are not going to force a bankruptcy, as something is better than nothing. The question is how much does EDMC have to give?
Ok when is this going to be brought up to employees?
Clearly EDMC is not worth anywhere near the value of the debt or this negotiation would not even be taking place. To answer the previous poster, Goldman thinks they can make the creditors 'blink' first and accept cash and/or equity that is worth less than $1.3B without taking control of the company. They have some reason to believe this because the creditors won't receive anywhere close to that in bankruptcy. In that way, Goldman has FAR less to lose than the creditors. They pretty much just take a 'reputation' hit. Thus, the job of the creditors is to make Goldman believe their threat of forcing bankruptcy is credible...which I think the news release, errr article, was intended to help accomplish.
The real question is how much is all the EDMC schools, property and equipment worth? If its more then 1.3 Billion, then the smartest financial thing to do as far as the creditors are concerned is to shut it down and sell everything. Anything over that is pure profit. Anyone know how much they are worth on paper assuming no more student loan income?
It's anyone's guess what new owners would do. I would not be dancing on the table if that happens. In theory, they would not shut it down because they want to get their money back. They might just break it off into smaller groups of schools and sell them off. I doubt they would want to manage it themselves or keep it exactly the same. On the other hand, it's very common for Corporate Raiders to buy a company, take out massive loans, drain it of cash, then close it down and sell off the assets. That is how Mitt Romney actually made his fortune. Only they called it "helping struggling companies".
What is the point of Goldman paying chicken. If they dont go with creditors deal, dont they lose anyway? File chapter 11? Do they have to dump the school in bankruptcy? Or can they wipe the debt of 1 billion and keep the school. If that's the case, don't look for them to do "the right thing". They will do whatever is financially in their best interest, that is how business works.
If they fail to agree, then DOE will 'settle it' in a manner similar to Corinthian. It's the classic game of chicken: the creditors want to take control and salvage whatever is left of their investment - leaving Goldman out in the cold, while Goldman wants to retain control and stick it to the creditors ($1.2 BILLION at stake). If they fail to agree, then we will have a mess that makes Corinthian look like childs' play. Seems to me the 'just' thing is to let someone else (the creditors) have a shot at running the company. Goldman has sure screwed things up, so what the heck? I had a Dean at one of the schols tell me, off the record of course, that someone else taking over EDMC would be "the best thing that could happen." Let's see if Goldman allows that to happen, or if they will allow hubris and greed to sink everyone's boat.
I believe the article stated that the DOE would yank student loan funding if there is no agreement? The DOE won't fund a company that files chapter 11 or can't meet financial agreements correct?
What can the creditors do if owners of EDMC do not agree?
They will take over all of EDMC and make their own decisions about what goes and what stays. It's anyone's guess how they will run EDMC, but my two cents is it can't be any worse than what is going on now. Actually, I think this is the best-case scenario (granted, all scenarios are fairly bad) for existing employees except for upper-level management (I would be very surprised if they are asked to stay, for the most part). You've got a shot at staying if your business unit is profitable. However, I think this news release was issued to put pressure on Goldman...they appear to be playing chicken with the creditors. If they keep on doing that, the DOE will settle it and everyone will lose.
I don't know which is why I'd like some of our business brains here to explain the mechanics. Do they just get the majority of stock options and leave things in place? What happens I situations like this? New owners doesn't necessarily mean new employees - does it mean new CEO? Tech info please
The school would be going to creditors. When was the last time you said to yourself "I really like how my creditor dose business".
New owners might be ok. But is this just for art institutes or for all the edmc schools. The article isn't clear.
Um, buh bye.
This news didn't break until 10:pm on a Friday. Someone is defiantly controlling the message. Looks like the 401K and new student grant program was just a diversion.
This his is not going to end well.
Good luck with that! EDMC is going down like the unsinkable Titanic. The only difference is that the White Star Line didn't proclaim everything was OK while they were taking on water and out of lifeboats.