Corinthian Colleges, the for-profit education company familiar to corporate law professors for its appearance in textbooks about securities regulation, now has a chance to appear in bankruptcy and restructuring texts as well.
Corinthian filed for Chapter 11 bankruptcy protectionin Delaware on Monday, along with two dozen affiliates. Its petition lists more than $100 million in debt owed to its secured lenders and at least $100 million more in unsecured debt. Its liabilities include $1.25 million in “trade debt” owed to Barclays Capital, most likely connected to Barclays’s attempts to sell the company, and hundreds of thousands of dollars owed to a host of law firms, which have handled an onslaught of litigation. Corinthian also owes an “unknown” amount to the Department of Education. It listed assets of $19.2 million.
Corinthian, based in Santa Ana, Calif., has been operating since July under a board-appointed chief restructuring officer, William J. Nolan, an employee of a large consulting firm. It has also been overseen by a monitor appointed by the Education Department, Patrick Fitzgerald, a former prosecutor who is now a partner at a leading law firm.
It has been a long slide for Corinthian, once a Wall Street darling. The company, founded in 1995, bought more than a dozen struggling vocational colleges and by 2010 enrolled more than 110,000 students online and at 100 Everest College, Heald College and WyoTech campuses nationwide. But federal and state regulators accused it of falsified placement rates, deceptive marketing and predatory recruiting, particularly of low-income students. The last of its campuses closed in late April.
The main question for creditors is whether there is anything for them to recover.
This includes various student groups, which have proclaimed their intent to continue to sue Corinthian and hold it responsible for what they describe as a systematic pattern of misleading students to borrow money to attend.
One group of students is represented by Public Counsel, the pro bono arm of the Los Angeles County and Beverly Hills bar associations (which long ago employed me as a summer intern after my first year of law school). Certainly this group will try its best to move the litigation forward, but Corinthian’s business model works against them.
An article on the website for Career College Central, a trade publication, noted in 2010 that one of the crucial “advantages” of for-profit colleges was that the “schools don’t spend money on building big campuses or tenured faculty.” In short, they don’t have many assets.
Corinthian is already moving to terminate leases on several buildings. For the students or other unsecured creditors to obtain anything in this case, Corinthian’s assets will have to generate more than the $100 million owed to secured creditors, plus the costs of the bankruptcy professionals.
That looks like a long shot.
http://www.nytimes.com/2015/05/07/business/dealbook/corinthian-colleges-lean-business-model-leaves-little-for-creditors.html?ref=education
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