For-Profit College Sector Pressured On More Bad News From ITT Education
The troubled for-profit college degree sector fell broadly Monday on more bad news from ITT Educational Services (NYSE: ESI).
ITT disclosed late Friday that a $119 million sale leaseback deal fell through and its lenders boosted a line of credit so that it's able to meet pending restrictions on federal funding.
ITT was hit with a lawsuit in February over its student loan practices from the newly formed federal Consumer Financial Protection Bureau.
Related Link: Education Stocks In Play On ITT Sell-Off
Meanwhile, ITT and four of its largest peers are getting probed by attorneys general from at least 13 states. The group of attorneys have sought documents from ITT, Corinthian Colleges (NASDAQ: COCO), Education Management (NASDAQ: EDMC) and Career Education (NASDAQ: CECO).
Corinthian recently said it will wind down its operations in the face of mounting investigations and tightened federal funding restrictions.
In March, the Obama Administration noted that the sector accounts for 13 percent of college students, but about 31 percent of all federal student loans and nearly half of all loan defaults.
ITT's leaseback agreement with College Portfolio Buyer LLC had concerned up to 24 pieces of property and buildings. College Portfolio sought to extend its available due-diligence period on the deal from July 31 to Semester 15, but ITT declined.
Extending the due-diligence period six weeks "would have prevented the company from entering other financing arrangements for the property," ITT said in a filing with the Securities and Exchange Commission late Friday.
In the same filing, ITT said its lenders had temporarily increased the amount of financing available for letters of credit to $98 million, from $80 million, to
meet potentially tighter federal funding restrictions.
Federal Education Officials threatened in May to declare "ITT "not financially responsible because it has failed to file timely financial reports in the face of investigations.
Such a finding would require to ITT to post a letter of credit equal to at least 10 percent of the $954 million in federal Title IV funds received by the company in its most recently completed fiscal year.
If federal officials don't make the demand by October 31, lenders will revert the amount available for letters of credit to $25 million.
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