Milbank, Tweed, Hadley & McCloy played a key role in the just-announced restructuring of higher-education provider Education Management Corporation (EDMC)—the firm advised the Ad Hoc Lender Group that was instrumental in formulating and negotiating the restructuring, and also represented a subset of that group that successfully prevented enjoining of the restructuring in federal district court.
Los Angeles-based Financial Restructuring partner Gregory Bray and Corporate and Finance partners Eric Reimer and Melainie Mansfield led the Milbank team representing the Ad Hoc Lender Group.
EDMC’s is the first successful restructuring of a large U.S.-based for-profit education company. In the initial phase of a two-part process, EDMC, its secured lenders, and unsecured noteholders agreed to exchange $1.5 billion of the company’s funded indebtedness for (1) new secured term debt of $400 million, new revolving availability of $150 million and an extension of $108 million of letters of credit; (2) non-voting, convertible preferred stock of EDMC; and (3) warrants exercisable into common equity of EDMC after completion of the U.S. Dept. of Education’s pre-acquisition review process and the receipt of other applicable regulatory approvals.
The restructuring occurred entirely out of court. Chapter 11 bankruptcy protection was not available to the company or its creditors, due to regulatory restrictions governing federal student loans, which represent a critical portion of EDMC’s revenue.
The out-of-court nature of the restructuring required the formulation of an innovative, stepped process designed to gradually give EDMC’s creditors control of the business, consummating the first step using Article 9 of the Uniform Commercial Code and a combination of debt and non-voting preferred equity. This approach garnered the support of lenders holding approximately 99% of EDMC’s then outstanding funded indebtedness.
EDMC and the Ad Hoc Lender Group expect to consummate the second step of the restructuring by mid-2015, upon the receipt of additional regulatory approvals and a vote by EDMC’s shareholders.
Milbank also represented a subset of the Ad Hoc Lender Group that intervened in litigation brought by dissenting minority creditors who sought a preliminary injunction on consummation of the restructuring. Following a two-day evidentiary trial, a federal district court denied the plaintiffs’ request for an injunction, thereby paving the way for the first step of the restructuring. Litigation partners Antonia Apps, Linda Dakin-Grimm, and Aaron Renenger headed the Milbank team in this brief round of litigation.
Ms. Apps is resident in Milbank’s New York office, Ms. Dakin-Grimm in New York and Los Angeles, and Mr. Renenger in Washington, DC.
The restructuring resolves EDMC’s (1) covenant defaults under its credit agreement, (2) near-term debt maturity concerns, including the former $328.3 million revolving credit facility that, but for the restructuring, would have become due on June 1, 2015 and (3) short- and long-term liquidity constraints.
Peter Leyton of Ritzert & Leyton PC acted as special education regulatory counsel for the Ad Hoc Lender Group.
About Milbank
Milbank, Tweed, Hadley & McCloy LLP is a leading international law firm providing innovative legal solutions to clients throughout the world for more than 150 years. Milbank is headquartered in New York and has offices in Beijing, Frankfurt, Hong Kong, London, Los Angeles, Munich, São Paulo, Singapore, Tokyo and Washington, DC.
The firm’s lawyers provide a full range of legal services to the world’s leading commercial, financial and industrial enterprises, as well as to institutions, individuals and governments. Milbank’s lawyers meet the needs of its clients by offering a highly integrated and collaborative range of services across key practice groups throughout its global network. Milbank’s integrated practice is underpinned by its attorneys’ acknowledged technical excellence, sectorial expertise and a strong tradition of innovation and client service.
