Share price of Education Management Corporation (EDMC) spiked 28.13% as the company completed the first phase of the debt restructuring plan with creditors announced on Sep 4, 2014. The agreement comprises two phases.
The first phase comprised a private offer to exchange all outstanding Senior Cash Pay/PIK Notes due 2018 and Senior PIK Toggle Notes due 2018. The company cancelled over $1.3 billion worth of outstanding debt in exchange for the issuance of two first lien senior secured term loans due Jul 2, 2020 and worth $400 million. The education company also paid off $150 million of its existing line of credit and obtained a new line of credit worth $150 million.
The surge in share price indicates that shareholders have faith in the company’s long-term prospects.
The company expects to complete the second phase by mid-2015 upon the receipt of necessary regulatory approvals and a vote from shareholder
In September, Education Management Corporation announced that it had failed to file its 10K for fiscal 2014. In fact, on Oct 23, Education Management revealed its intention to voluntarily delist its common stock from The Nasdaq Global Select Market and deregister its common stock under the Securities Exchange Act of 1934. Instead, the company entered into a Restructuring Support Agreement with creditors to suit the new situation.
Meanwhile, the company has been facing various litigation issues lately. A number of law firms including Pomerantz LLP, Rosen Law Firm, P.A., Glancy Binkow & Goldberg LLP, Levi & Korsinsky, and Law Offices of Howard G. Smith have begun investigating potential claims against Education Management. The firms will inspect whether the company has violated any of the federal securities laws or has provided inaccurate statements regarding its financial position.
These law firms are concerned that Education Management Corporation might have violated federal laws by overstating revenues and goodwill. There are speculations that the company might have manipulated federal student loan and grant programs and engaged in inappropriate recruiting and enrollment practices.
Education Management Corporation carries a Zacks Rank #3 (Hold).
Stocks to Consider
Better-ranked stocks in the education industry include National American University Holdings, Inc. (NAUH), Bright Horizons Family Solutions, Inc. (BFAM) and Grand Canyon Education, Inc. (LOPE). All the three companies hold a Zacks Rank #2 (Buy).
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