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For-Profit for Sale?

May 7, 2014

Corinthian Colleges signaled on Wednesday that it was open to merging or selling off all or part of its business. But the embattled for-profit chain faces a tough market, as well as looming regulatory and legal challenges.

The company’s various holdings now enroll 75,000 students, according to a corporate filing it released this week. That’s down almost 14 percent from last year. Corinthian also reported a roughly 12 percent decline in revenue for the first three months of this year, with a net loss of $80 million.

Jack Massimino, Corinthian’s chairman and CEO, told investors that the company had slashed annual costs by $125 million -- including layoffs of 1,350 employees -- to try to adjust to slumping enrollment. And it recently closed or sold seven of its Everest College campuses.

But while the cuts helped, Massimino said, the company is not out of the woods and expects future declines.

For example, Corinthian reported that it is not in compliance with some of its bank debt covenants, and has sought waivers from certain lenders. The company also disclosed that it might be tripped up by a U.S. Department of Education financial responsibility test, which has caused Corinthian problems in the past.

“In light of current market and regulatory conditions, our board has authorized management to retain an investment banking firm to help the company explore strategic alternatives and enhance shareholder value,” Massimino said in a written statement.

In the parlance of Wall Street, working with an investment bank on “strategic alternatives” means a possible sale or merger. Even so, that doesn’t mean Corinthian is courting buyers. The company might indeed sell off part of its operations. Or Massimino might just have been reassuring jittery investors by telling them the company is open to various options.

Corinthian may have been the most recent among the publicly traded for-profits to make a major deal, but as a buyer. In 2010 the company paid $395 million for Heald College, a regional for-profit with 11 campuses and 13,000 students. Besides Heald and Everest, the company also owns WyoTech, a chain with a focus on automotive and other technology fields.

If Corinthian does attempt to unload Heald or other pieces, it will do so amid uncertainty about regulatory and legal issues.

The company, like most for-profits, is concerned about the possible impact of proposed gainful employment regulations. Those rules, which the Obama Administration is pushing, seek to crack down on vocational programs where graduates are struggling to find work and pay off debt.

Corinthian is being sued by attorneys general in California and Massachusetts. The California lawsuit alleges that the company paid temp agencies to hire its graduates in an attempt to boost job placement rates. And Corinthian has also said it is under investigation by the Consumer Financial Protection Bureau.

“The regulatory and legal issues facing the company are serious and we're working diligently to resolve them. Our near-term operating and financial challenges are equally pressing,” Massimino told investors on Wednesday, according to an earnings call transcript. “The good news is that Corinthian has resources that deliver value to students and that have the potential to, once again, create value for shareholders.”

 

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