Corinthian Says It Breached Terms of Bank Covenants

Corinthian Colleges Inc., an operator of for-profit colleges, said it breached the terms of its bank covenants and is seeking a waiver from lenders to avoid being declared in default.

Corinthian, which disclosed the breach in a statement today, is the second for-profit college chain in less than a week to say it’s in danger of not meeting loan agreements. On May 1, Education Management Corp. said a capital restructuring will probably put it in breach of its covenants.

For-profit colleges are suffering enrollment declines amid investigations by Congress, the Justice Department and state attorneys general into their recruitment and student borrowing practices. While students can improve their job prospects with online, for-profit college programs, too many of them are left with debt and no degree, Education Secretary Arne Duncan said in March.

“The company continues to face a number of challenges which have combined to decrease new student enrollments, reduce revenue and pressure margins significantly,” Chief Executive Officer Jack Massimino said today in a statement.

Corinthian and Education Management both fell to record lows today in New York. Corinthian dropped 9.2 percent to $1.08, while Education Management tumbled 14 percent to $2.38.

A valuation allowance related to deferred tax assets was responsible for the breach in its loan terms, Santa Ana, California-based Corinthian said. The board has hired an investment bank to explore strategic options, Massimino said.

Enrollment Drop

Corinthian said third-quarter results missed its own expectations for new student enrollment, revenue and earnings per share. New student enrollment fell 13 percent to 22,853 in the quarter ended March 31, and the company forecast a drop of 16 percent to 18 percent in the current three-month period.

Corinthian posted a third-quarter loss of $79.6 million, or 91 cents a share, compared with a loss of $1.02 million, or 1 cent, a year earlier. Revenue fell 12 percent to $349.8 million, missing the $355.6 million average of analysts’ estimates compiled by Bloomberg. Sales have fallen in the past five quarters.

Earnings from continuing operations were 3 cents a share, below the 5-cent average of analysts’ estimates.

(Updates with closing share prices in fifth paragraph.)
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