Education Management again extends exchange offer for notes

By Susanna Moon

Chicago, Dec. 8 – Education Management Corp. said it again extended the private exchange offer for its senior cash pay/pay-in-kind notes due 2018 and senior PIK toggle notes due 2018.

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

The offer was extended this time to 5 p.m. ET on Dec. 11 from 5 p.m. ET on Dec. 5 and, before that, from Dec. 1 and from Nov. 24.

On Oct. 30 the company said it extended the offer to Nov. 24 from Oct. 29 because of a noteholder suit.

At that point, more than 90% of the notes had been tendered in the exchange offer and holders of about 98% of the aggregate claims for the notes and the company’s credit facilities had contractually committed to participate in the company’s restructuring, according to a previous 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.”

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 offer began on Oct. 2. On Oct. 7 Education Management amended the exchange offer, allowing holders to tender for exchange in minimum denominations of $2,000 and increments of $1.00 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 tendered 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.

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