On May 4, 2015, one of the largest for-profit post-secondary education companies in the United States and Canada, Corinthian Colleges, Inc., and 24 of its affiliates, filed voluntary chapter 11 petitions in the Bankruptcy Court for the District of Delaware. The cases are docketed as case no. 15-10952 and have been assigned to the Honorable Kevin J. Carey. The petition lists assets of approximately $19.2 million and liabilities of $143.1 million.
In support of the petitions, the Debtors filed the Declaration of William J. Nolan, the Chief Restructuring Officer of the Debtors and a Senior Managing Director with FTI Consulting, Inc. According to the Nolan Declaration, as of March 31, 2015, the Debtors had over 100 campuses, 74,000 students and 10,000 employees. The Nolan Declaration states that in addition to approximately $105 million of outstanding obligations under their prepetition secured credit agreement, the Debtors have another $100 million of unsecured debt owing to landlords, trade creditors, lessors, employees and students, as well as regulatory refunds, fines and penalties.
Prepetition the Debtor relied on funding pursuant to Title IV of the Higher Education Act of 1965. According to the Nolan Declaration, nearly 90% of the Debtors’ prepetition revenue consisted of Title IV funding. As a result of regulatory oversight, access to Title IV funding can be restricted.
Mr. Nolan reveals in his declaration that, in January 2014, the Debtors received various inquiries from the Department of Education seeking information about various educational statistics reported by the Debtors. In June 2014, the DOE requested additional information, and imposed a 21-day in the ability to draw down Title IV funds. The delay in being able to draw funds created a liquidity crisis for the Debtors. In attempts to resolve those issues and open up access to funds, the Debtors agreed with the DOE to “teach out” at certain schools, i.e. continue to teach existing students until the conclusion of their education, but not accept any new students.
The Debtors also undertook to market certain aspects of their business for sale. Through that process, 56 of the Debtors’ Everest and Wyotech schools were sold in February 2015. Although attempts were made to sell or teach out at certain of the remaining schools, such efforts were unsuccessful. As of April 27, 2015, the Debtors discontinued instruction at all of their schools and began the process of winding up operations.