Henry Kravis’ KKR and other lenders are expected to offer next week the owners of the country’s 50 Art Institutes a revised debt package that will transfer ownership of the for-profit college to the creditors, The Post has learned.
Goldman Sachs and Providence Equity, owners of the money-losing Education Management Corp. (known as EDMC), broke their loan covenants on $1.3 billion in debt and have been trying to work out a restructuring plan with KKR and other lenders for months.
EDMC, whose lineup of schools includes The Art Institute of New York City, in Midtown Manhattan, has until Sept. 15 to decide on the offer.
The creditors voted on the new plan on Thursday, sources said. The new plan has the owners giving up most of their equity in EDMC over time, sources said.
If EDMC does not reach a deal with its creditors, it risks having Washington cut off funding of student loans any day, sources said.
Federal regulators are in the middle of their regular audit of EDMC books.
All for-profit schools have come under greater scrutiny from Washington because of the high levels of debt students accumulate.
KKR and the other lenders were hoping to have a new debt agreement worked out by now, but have run into resistance from Goldman and Providence, sources said.
“We don’t have the owners on board,” a lender said. “I would hope Goldman and Providence do not blow this deal up over relatively small dollars.”
There is much at stake.
EDMC colleges — that also includes Argosy University, Brown Mackie College and South University — have 125,000 students.
A spokesperson for the Department of Education on Friday said it couldn’t comment on anything regarding EDMC.
Federal regulators in July, as part of a probe into whether for-profit colleges mislead students and survive primarily to collect federal student loans, forced another smaller group of schools, Corinthian Colleges, to shut its campuses.
It will take months for the lenders to take control of EDMC because they would need first to gain the okay from the education departments in the 25-plus states in which the college operates.
In the new debt package, the creditors would receive convertible preferred notes that allow those creditors — once they get the state approvals — to take over, sources said.
KKR cannot force the company into bankruptcy or it would likely be the death knell for the college, as the US Department of Education would likely immediately stop all student loan payments.
Goldman, Providence and KKR declined comment. EDMC did not return calls.