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Education Management Corp (EDMC): Private Debt Exchange Offer

Education Management Corporation (EDMC) provides post-secondary education in North America. It offers academic programs to students through campus-based and online instruction to earn undergraduate and graduate degrees, including doctoral degrees, and certain specialized non-degree diplomas in a range of disciplines. The company provides education through four education systems comprising The Art Institutes, Argosy University, Brown Mackie Colleges, and South University.

EDMC announced that its indirect subsidiaries, Education Management LLC (the “Company”) and Education Management Finance Corp. (the “Co-Issuer” and, together with the Company, the “Issuers”), commenced a private offer to exchange (the “Exchange Offer”) their 8¾% Senior Notes due 2014 (the “Old Notes”) for new Senior Cash Pay/PIK Notes due 2018 (the “New Notes”) and cash.

In addition, holders whose Old Notes are exchanged in the Exchange Offer will receive accrued and unpaid interest in cash in respect of their exchanged Old Notes from the last applicable interest payment date to, but not including, the settlement date for the Exchange Offer.

It is a condition to the completion of the Exchange Offer that Old Notes with an aggregate principal amount of at least $318,750,000 (the “Minimum Tender Condition”), representing 85% of the outstanding aggregate principal amount of Old Notes, be validly tendered (and not validly withdrawn) on or prior to the Expiration Date (as defined below).

On February 1, 2013, the Issuers entered into exchange agreements (the “Exchange Agreements”) with certain institutional investors that are holders of certain of the Old Notes, pursuant to which such holders agreed to participate in the Exchange Offer. Pursuant to the terms of the Exchange Agreements, such holders have agreed to tender approximately $330.7 million aggregate principal amount of Old Notes, representing 88.2% of the outstanding aggregate principal amount of Old Notes. The exchange of such Old Notes is subject to the satisfaction of the conditions of the Exchange Offer.

The New Notes will be issued by the Issuers and guaranteed by Parent and all of the Company’s existing direct and indirect domestic restricted subsidiaries, other than any subsidiary that directly owns or operates a school or has been formed for such purpose and has no material assets.

Cash interest on the New Notes will accrue at the rate of 15% per annum. For any interest period after March 30, 2014 up to and including July 1, 2018, interest in addition to the cash interest payable as described in the previous sentence will be paid by increasing the principal amount of the outstanding New Notes or by issuing additional New Notes (“PIK Interest”). PIK Interest on the New Notes will accrue at a rate of

  • 1.0% per annum for the period from March 30, 2014 through and including March 30, 2015
  • 2.0% per annum for the period from March 30, 2015 through and including March 30, 2016
  • 3.0% per annum for the period from March 30, 2016 through and including March 30, 2017
  • 4.0% per annum for the period from March 30, 2017 through and including July 1, 2018.

Holders whose Old Notes are validly tendered after the Early Tender Deadline but on or prior to midnight, New York City time, on March 1, 2013 (such time and date, as the same may be extended, the “Expiration Date”) will receive, in respect of each $1,000 principal amount of Old Notes accepted for exchange, the “Exchange Consideration Amount” of $970, comprised of a combination of Exchange Cash Consideration and Exchange Notes Consideration.
The “Exchange Cash Consideration” per $1,000 principal amount tendered after the Early Tender Deadline and on or prior to the Expiration Date and accepted for exchange will equal the Total Cash Consideration per $1,000 principal amount tendered on or prior to the Early Tender Deadline and accepted for exchange minus $30. The “Exchange Notes Consideration” per $1,000 principal amount tendered after the Early Tender Deadline and on or prior to the Expiration Date and accepted for exchange pursuant to the Exchange Offer will equal the Total Notes Consideration per $1,000 principal amount tendered on or prior to the Early Tender Deadline and accepted for exchange.

The mix of consideration consisting of New Notes and cash will be determined based on the amount of Old Notes tendered at or prior to the Early Tender Deadline.