EDMC Cuts Deal to Trim Over $1B in Debt

Career College Central Summary:

  • EDMC said Wednesday that it has reached an agreement in principle with holders of more than 80% of its debt for an out-of-court restructuring deal that would reduce its $1.5 billion debt load to $400 million through a debt-for-equity swap.
  • According to a financial industry source who follows the company, term lenders led by private equity firm KKR & Co. are in the driver's seat in the negotiations.
  • The lenders want equity holders Goldman Sachs Capital Partners and Providence Equity Partners to stay in the deal in order to avoid change-of-control issues that would be troublesome from a regulatory perspective.
  • A consortium of private equity firms led by led by Providence Equity, Goldman Sachs Capital Partners, and Leeds Equity Partners owns 85% of the Pittsburgh-based company's equity after a March 5, 2006 leveraged buyout.
  • Another important point for Education Management's lenders is to take preferred equity instead of common equity, the source said, adding that the term lenders will take a larger share of equity than the revolving credit facility lenders.
  • The financial industry source noted that the prevalence of asset managers, rather than bank lenders, in Education Management's capital structure made it a lot easier to pursue a debt-for-equity swap deal.
  • The for-profit education industry has long relied on traditional bank lenders for financing, but asset managers and distressed funds have increasingly been taking positions in these companies' debt, the source explained.

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