TribLive. August 26, 2014.
Education Management Corp. stayed mum on Monday about a report that its creditors hope to take ownership of the Downtown-based company as part of a debt restructuring deal.
The for-profit education company has been negotiating for months to restructure $1.3 billion in debt on which it broke loan covenants. Its lenders, led by investment firm KKR, are expected to propose a deal this week in which EDMC owners Goldman Sachs and Providence Equity give up most of their equity stake to the creditors over time, the New York Post reported.
EDMC spokesman Tyler Gronbach declined to comment on the Post's report but said the company continued to negotiate with lenders.
“Discussions with our lenders continue with the ultimate goal of aligning the capital structure with the current operating environment,” Gronbach said.
EDMC has until Sept. 15 to decide on the deal, the Post reported. That is when a waiver on covenant requirements on EDMC's credit agreement expires, and the date it must file its annual report with regulators.
Spokespeople for Goldman, Providence and KKR declined to comment.
The debt is one of many challenges for EDMC. The company is headed for its third consecutive year of declining revenue and faces a potentially multibillion-dollar federal lawsuit over recruiting practices. Since last year, it has slashed more than 600 employees nationwide, nearly half of them in Pittsburgh, and recently targeted employee retirement plans among its cost cuts.
The debt has weighed heavily on EDMC, especially as the company shrinks in size, said Trace Urdan, senior analyst at Wells Fargo Securities. The company can't keep “kicking the can down the road,” he said, and converting the debt into equity for lenders may be the best option.
“It makes a lot of sense,” Urdan said. “It solves a lot of problems if they can remove that debt burden.”