ITT Educational Services Inc (ESI) received a letter from the US Department of Education (ED)
ED required ITT Tech to increase its existing guarantee of $79.7 million to $123.6 million. ESI have to comply within 45 days from the date of the ED letter to provide the Additional Amount of $43,938,303. This is either cash or letter of credit.
ESI had submitted a letter of credit for $79.7 million which is termed “ED Letter of Credit” in the beginning. The agreement was termed “ED Agreement” on December 16, 2015. Furthermore, with ED to maintain an escrow account, the “ED Escrowed Funds” until November 4, 2019.
“Will the company be able to provide the required additional amount?” I think they can because Cerberus Business Finance LLC could finance their financial needs. Although ESI had originally borrowed $100,000 million, ESI was able to pay and the half of it with a balance $50,505 million as of March 31, 2016. In addition, ESI expects a $0 balance on December 31, 2016. The future cash earnings of ESI are already set for payment of their current obligations. Therefore it becomes a challenge for them to pay the additional escrow.
ITT Tech SEC 8K Filing Report
Quoted from SEC 8k:
“The Financing Agreement entered into among the Company, Cerberus Business Finance LLC, as collateral agent and administrative agent, and the lenders’ party thereto (as amended, the “Financing Agreement”) permits the Company to incur certain types of indebtedness. Permitted indebtedness under the Financing Agreement includes indebtedness in respect of cash collateral under the ED Agreement in an aggregate amount not exceeding $120,000,000 at any time outstanding, as well as other indebtedness in an aggregate amount not exceeding $17,500,000 at any time outstanding, which amount is not currently represented by any existing type of indebtedness. Based on these permitted types and amounts of indebtedness, the Company does not believe that the Additional Amount, when provided, will constitute a default under the Financing Agreement.”
The possible effect of the regulation imposed by ED could materially affect its liquidity. The company’s current situation, there is no certainty that they could fund the Additional Amount. However, through Cerberus Business Finance LLC they might be able to meet its obligation with the DOE.
To view the research report of ITT Tech please click here.
Research and Written by Cris
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