ITT Educational Services Inc.’s (ESI) shares nosedived 46% as the company called off its sale and lease back deal with College Portfolio Buyer LLC (CPB) which would have boosted its cash position with $119.1 million. The termination of the deal is a significant blow to investor confidence as the company is already mired in controversies.
On May 8, 2014, ITT Educational had entered into an agreement with College Portfolio Buyer to sell and lease back about 24 parcels of property and other assets to the latter. However, when College Portfolio asked to extend the diligence period of the deal from Jul 31 to Sep 15, ITT Educational responded in a Securities and Exchange Commission (SEC) filling that it would prefer to negotiate with other prospective buyers and the deal was called off.
ITT Educational also mentioned in the filling that the company may be required to provide a letter of credit to the Department of Education (DOE). ITT Educational Services is facing the threat of being declared “not financially responsible” by the DOE as it has not been able to file its earnings results since the fourth quarter of 2013 owing to certain uncertainty related to accounting treatment of the PEAK Private Student Loan Program in the company’s financial statements.
In fact, ITT Educational withdrew its previously provided guidance for 2014 on May 22 as the company could face restrictions in terms of student financial aid funding.
On Monday, ITT Educational announced that its CEO Kevin M. Modany has notified the board of directors about his plan to resign, effective from Feb 4, 2015. He has already stepped down as the director and chairman. Modany has been CEO since Apr 2007. The company has named John Dean as executive chairman.
ITT Educational is also facing various litigation processes. A number of law firms including Pomerantz LLP, Johnson & Weaver, LLP, Rosen Law Firm, P.A., Levi & Korsinsky, and Law Offices of Howard G. Smith have begun investigating potential claims against ITT Educational. The firms will inspect whether the company has violated any of the federal securities laws or has provided inaccurate statements regarding its true financial position. Some of the investigations also concern the company’s credit practices.
All these controversies have severely affected the company’s share prices in this year. Shares of this Zacks Rank #5 (Strong Sell) company have lost a significant 77% since Jan 2014.
However, some other education companies are doing well. DeVry Education Group Inc. (DV), Grand Canyon Education Inc. (LOPE) and Capella Education Company (CPLA), all carrying a Zacks Rank #2 (Buy).
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