Board shake-up caps restructuring at Pittsburgh-based Education Management
Education Management Corp. CEO Edward West will keep his job despite a purging of the company’s board as new owners take over at the troubled operator of for-profit colleges.
Downtown-based EDMC said Tuesday it had finalized a restructuring deal to wipe out $1.3 billion in outstanding debt in exchange for giving lenders a majority stake in the company.
Eight of EDMC’s 11 directors resigned as the new owners moved to reduce the board overseeing the company to five members. West and two directors who were nominated by the lenders this year will remain on the board.
“We look forward to working closely with our new majority shareholders,” West said in a statement. “This new capital structure will allow us to focus on providing an exceptional educational experience to over 100,000 students.”
EDMC has struggled as declining enrollment hurt its financial performance. It posted annual losses for the last three years, including $664 million in 2014, and has implemented a series of layoffs to cut costs.
Spokesman Chris Hardman declined to say whether more cuts to staff or school closures are planned.
It is difficult to know what changes could be in store at EDMC, either for their colleges or in the leadership, said analyst Trace Urdan of Wells Fargo Securities. But he said it isn’t unusual that West did not lose his job.
West, who became CEO in August 2012, could not shoulder total blame for EDMC’s losses at a time when all for-profit education companies are facing plummeting enrollment, Urdan said. And he has knowledge of the industry that would be difficult to find elsewhere.
“There’s not a lot of available talent floating around out there,” Urdan said. “He has the advantage of knowing where the bodies are buried.”
Enrollment at for-profit colleges was hurt by the recession and as the federal government stepped up scrutiny over what it alleges are deceptive recruiting practices by the industry and a failure to adequately prepare students for jobs while saddling them with hefty loans.
EDMC could have to cut or merge programs as competitors have been forced to do in the past year because of the decline in the industry and regulatory pressure, Urdan said.
California-based Corinthian Colleges was forced to sell more than half of its 107 campuses last year to a nonprofit education entity established by student debt collector ECMC Group as part of an agreement with the federal government. Among those sold was Everest Institute in Pittsburgh.
Like Everest, EDMC’s Brown Mackie Colleges offer vocational programs that have struggled to recruit students. For many students, the low wages they can expect to earn as a medical assistant, for example, don’t justify the high cost to enroll.
“If there are jobs at the mall that are paying $12 per hour, it becomes hard to recruit those students,” Urdan said.
A federal lawsuit over EDMC’s recruiting practices could prompt hefty financial penalties. Meanwhile, Connecticut-based hedge fund Marblegate Asset Management last year sued to stop the restructuring deal in hopes of recouping its $14 million investment. Both lawsuits are pending.
Beside West, the two board members who kept their seats are Kermit Cook and Mark McEachen. The board additions include John Danielson, chairman and managing director of Chartwell Hamilton Group LLC and former chief of staff at the U.S. Department of Education, and Johnathan D. Harber, former CEO of Pearson K12 Technology and founder of Schoolnet Inc.
Shareholders must approve Danielson and Harber.
EDMC schools include The Art Institutes, Argosy University, Brown Mackie College and South University. It has 110 campuses across North America with 112,430 students and roughly 20,800 employees.
Chris Fleisher is a staff writer for Trib Total Media. He can be reached at 412-320-7854 or email@example.com.