For-Profit College Operator Corinthian Plans To Explore A Sale As Losses Mount

With enrollments and revenue still falling, Corinthian Colleges is in danger of going into default, and could be looking to sell.

For-profit college operator Corinthian Colleges, whose Everest College chain has been hit hard by lawsuits, federal investigations, and spiraling enrollments, plans to retain the investment bank Barclays to "explore strategic alternatives," which is code for the possibility of merging or selling itself to another company or private equity firm.

The decision to explore strategic alternatives was precipitated by Corinthian's breaching of the terms of its bank agreements, which could force a default on its credit lines with lenders, the company said in its quarterly earnings report this morning.

In addition to the beleaguered Everest, Corinthian operates two other college chains, a technical school called WyoTech and Heald College, a career and business school. Analysts say Corinthian could look to offload those smaller schools rather than Everest, which, with its regulatory problems, could be a much tougher sell.

On Corinthian's earnings call, analysts tried to gauge the potential values of the company's individual college chains, but the company declined to report breakdowns in revenue by school.

"It's a much simpler process to sell individual schools than to sell the entire company," said CEO Jack Massimino on the call. "Selling the company would not be a quick turnaround option."

New enrollments at Corinthian fell 13% year over year, and net revenue dropped 11.7% to $349.8 million, below analyst estimates. For the three months ended March 31, the company reported a net loss of $79 million. In its earnings report, the company blamed its numbers on "weather-related school closures."

On the company's earnings call, an executive said that Corinthian's composite score would fall between 1.0 and 1.5 for fiscal 2014, and that a score of less than 1.5 would constitute default. The company expects to operate at a 3-year cumulative loss and as a result will not be able to take advantage of deferred tax benefits, the executive said.

Corinthian isn't the only for-profit college chain facing the possibility of default. EDMC, which operates the Art Institutes, announced last week that it might breach its debt covenants as its annual earnings fell 22%. EDMC's stock has dropped more than 88% this year, among the worst in the for-profit sector.

By 1 p.m. Tuesday, Corinthian's stock had fallen roughly 12% to around $1.05.

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