NEW YORK (MainStreet) In what appears to be an effort to keep Corinthian Colleges in business until a buyer can be found, Corinthian creditor Bank of America agreed to allow it to sell a portfolio of loans to an unidentified buyer for about $19 million according to its August 25 8-K filing with the Securities and Exchange Commission (SEC). Bank of America had been a lead institution in a $235 million credit facility issued to Corinthian in 2003.
The cash flow crisis at Corinthian began on June 19 when the Department of Education (ED) forced the school to wait 21 days instead of the customary three after submitting enrollment data to draw down Federal funds. ED acted after the for-profit college failed to address allegations that it altered grades and attendance figures while falsifying job placement data in its marketing materials.
But Corinthian would have run out of money if it had to wait 21 days for Federal cash. Corinthian's dire straights took ED by surprise, and began to look for a way to either sell or shut its campuses.
In a June 23 statement, ED said that it's concern was "to prevent the immediate closure of the career training program chain and prevent suddenly disrupting the education of 72,000 students and the jobs of 12,000 employees." ED signed a Memorandum of Understanding requiring the company to sell itself over the next six months and hire an ED-approved monitor to "oversee its finances and the sales process."
"The Department's foremost interest is to protect students and make sure they are educated by institutions that operate according to our standards," said ED under secretary Ted Mitchell.
In July Corinthian received $51 million from ED after agreeing to sell or close 85 of its 97 campuses among its education properties, including the Heald College, Everest and WyoTech chains. Last year Corinthian received about $1.4 billion from the Federal government.
But stop-gap funding from ED seems to have been inadequate, leading to the sale of the student loan portfolio. Corinthian also unloaded real estate in Melbourne, Florida and unspecified equipment from WyoTech campuses.
The buck didn't stop there. In what has been an eventful week for the Santa Ana, Calif.-based company, the SEC filing also indicated that the company is facing an inquiry from Consumer Financial Protection Bureau (CFPB), which contacted Corinthian a day after the $19 million student loan portfolio sale. The CFPB asserts that Corinthian violated the Dodd-Frank Act and Fair Debt Collections Practices Act. The filing also stated that the CFPB were ready to negotiate a settlement.
CFPB spokesperson Moira Vahey declined to comment on their investigation while referencing the remarks of Director Richard Cordray at a February press conference announcing an enforcement action against ITT Educational Services, a Corinthian peer. Cordray said, "The corporations that own these colleges often seem to care more about dollar signs than diplomas."
State attorneys general are also backing Corinthian into a corner. Florida, New York, Illinois and Virginia have prevented Corinthian from enrolling any more students using military benefits. Corinthian has contested those restrictions and warned that any prohibition against enrolling vets "could negatively affect the sales process in states where it is trying to sell its companies."
Amid the threat from regulators, was the sale of the loan portfolio the first step in an attempt to buy more time to find a buyer or different circumstances that would keep Corinthian open?
After Corinthian had been pulled back from the brink, it was never clear whether the goal was a wholesale shut down or a sale that would enable Corinthian to continue under a different guiseor whether the Corinthian would be able to make those decisions on the fly. The pickings could slim when it comes to prospective buyers of a for-profit college being sanctioned by multiple Federal regulators and state regulators and whose future access to Federal money has been cast into doubt. And students face the possibility that a new buyer may refuse to transfer credits from legacy Corinthian campuses to a new program.
Corinthian is continuing to register students but has been slow to inform them about its compromised situation. In an Everest University online chat room called "College Corner," student Jeffrey Holman said yesterday that he wasn't getting clear answers from the University about its status.
Kent Jenkins, Corinthian Colleges' Washington, D.C-based vice president of public affairs communications did not respond to a request for comment.
Corinthian Stock closed at 16 cents per share on Thursday.
--Written by John Sandman for MainStreet