Education Management extends exchange offer due to noteholder suit

By Susanna Moon

Chicago, Oct. 30 – Education Management Corp. said it extended the private exchange offer for the senior cash pay/pay-in-kind notes due 2018 and senior PIK toggle notes due 2018 related to a noteholder suit.

The notes were issued by the company’s indirect wholly owned subsidiaries Education Management LLC and Education Management Finance Corp.

The exchange offer will now end at 11:59 p.m. ET on Nov. 24, extended from 11:59 p.m. ET on Oct. 29.

To date, more than 90% of the notes have been tendered in the exchange offer and holders of about 98% of the aggregate claims for the notes and the company's credit facilities have contractually committed to participate in the company’s restructuring, according to a company press release.

Despite this, the company said it decided to extend the offer under an arrangement with Marblegate Asset Management, LLC and Magnolia Road Capital LP in connection with litigation that the minority noteholders began on Oct. 28 in the U.S. District Court for the Southern District of New York.

The minority noteholders, who own about $20 million of the notes, seek to enjoin the restructuring, the press release noted.

“In their application for preliminary injunctive relief, they argue that the company should ‘refashion’ the restructuring, ‘simply keeping [the minority noteholders'] notes in place and pay[ing] the interest and principal when due,’ while other creditors exchange their debt claims for equity interests,” the company said in the press release.

Education Management said it intends to defend the litigation “vigorously.”

The hearing on the minority noteholders' motion for preliminary injunctive relief has been set for Nov. 18. If the motion is denied, the company said it will move to complete the Restructuring as soon as possible.

In the meantime, the company has agreed to keep the exchange offer open, and the minority noteholders have agreed that the company will not need to pay the cash interest due on the notes.

More exchange offer details

The company said on Oct. 7 that it amended the exchange offer, allowing holders to tender for exchange in minimum denominations of $2,000 and increments of $1 after that. Before the change, tenders in excess of the minimum had to be in integral multiples of $1,000.

As previously noted, the company is offering a combination of mandatory convertible preferred stock and warrants in exchange for the notes.

Holders who tender their notes for exchange by 5 p.m. ET on Oct. 22, the early tender date, will receive for each $1,000 principal amount of notes and, in the case of the cash pay/PIK notes, accrued interest to but excluding Sept. 30, 8.5 preferred A-2 shares and their pro rata share of class A warrants for up to 10% of the fully diluted common shares.

Those who tender their notes after the early deadline will receive for each $1,000 of exchange amount, 95% of the preferred A-2 shares and 95% of the class A warrants that they would have received had they tendered by the early tender deadline.

The exchange offer is in connection with the company’s previously disclosed proposed restructuring and is conditioned on completion of the restructuring.

D.F. King & Co., Inc. (edmc@dfking.com or 212 269-5550) is the information agent.

Education Management is a Pittsburgh-based provider of private post-secondary education. It started the offer on Oct. 2.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.