Situation Overview

Corinthian Colleges, Inc., a large for-profit post-secondary education company, with more than 100 campuses across North America, offered career-oriented diploma and degree programs. Corinthian Colleges faced numerous investigations and lawsuits, at the state and federal levels, based on accusations of unfair recruitment practices and deceptive advertising tactics. The U.S. Department of Education and Corinthian Colleges reached an agreement to execute a controlled shut down of 12 U.S. schools and a sale of 85 other schools. Shortly after announcing closure plans, a non-profit acquirer took ownership of more than half of Corinthian Colleges’ campuses and the company filed for bankruptcy.

Carl Marks Advisors was engaged as a strategic and financial advisor because of our deep subject matter expertise in the for-profit education sector, unmatched knowledge of college operations and experience working on matters that involved the U.S. Department of Education and accreditors.

Unique Challenges

The situation for Corinthian Colleges rapidly declined after the Department of Education placed Corinthian Colleges under Heightened Cash Monitoring 2 (“HCM2”). This delay in the flow of funds crippled Corinthian Colleges’ ability to continue operations during the summer months, when collections were at the lowest levels, and accelerated the path to liquidation.

Results

Carl Marks Advisors’ experience with Title IV processing and compliance, evaluating teach-out and transfer plans, real estate leases and landlord negotiations helped identify liquidity opportunities to bridge a sale process. A proactive and hands-on approach kept the secured lenders briefed and advised on recovery options and risks. The team at Carl Marks Advisors worked closely with counsel, the Agent and the secured lender group to manage the issues and documentation for every sale, waiver, letter of credit and forbearance in this complex situation.

The Corinthian Colleges liquidation is mostly completed but its aftermath may go on for a while given the fact that thousands of students were displaced and the U.S. Department of Education’s new rules for students pursuing loan forgiveness under the Closed School Discharge and the Borrower Defense Discharge rules.

Restructuring Keys

  • Improve student outcomes by increasing the selectivity of admissions processes and investing in placement services and capabilities.
  • Reduce costs by restructuring operations, renegotiating property leases, streamlining headcount, and retooling marketing and advertising.
  • Develop and tailor programs that are relevant and attractive in today’s job market.
  • Establish a culture that provides a high-touch experience for students in order to improve retention rates.
  • Integrate online learning for flexibility and controlling costs.
  • Teachouts are costly and time consuming, but must be considered to improve liquidity.
  • Diversify revenue sources with corporate training and community programs.
  • Institutions with multiple programs with low Gainful Employment scores are of little interest to strategic buyers. Buyers need a lot of working capital to make the necessary changes to improve failing programs and are not willing to pay as much upfront. Improving Gainful Employment scores before pursuing a sale is often beneficial for distressed educational institutions.