Corinthian Colleges Inc. is expected to sell campuses and cut programs under an agreement with the U.S. Department of Education—a deal that could be the beginning of the end for the for-profit school operator.
Corinthian is likely to be a radically different entity, even if it survives its latest storm.
Representatives of the Santa Ana-based company didn’t return phone calls, and federal education officials declined comment on the outlook for Corinthian’s operations, which include more than 100 campuses with 72,000 students in the U.S. and Canada. Students receive an estimated $1.4 billion in financial aid a year, 85% of the company’s revenues, according to reports.
Some observers took last week’s developments as indicators that Corinthian is winding down its operations after 19 years of providing technical and vocational training.
“At the end of the day there won’t be anything left,” said Trace Urdan, a senior analyst with San Francisco-based Wells Fargo Securities, the largest institutional owner of Corinthian shares, a stake of about 13%.
The skeptical outlook stretched to the East Coast.
“I don’t see it being a stand-alone institution at the end of this,” said Washington, D.C.-based Compass Point Research & Trading LLC Senior Analyst Michael Tarkan.
The preliminary agreement reached last week called for Corinthian to get immediate access to $16 million in financial aid funds from the education department.
It came a few days after the federal agency moved to restrict Corinthian’s access to such funds in response to what it characterized as a lack of cooperation from the company on an investigation into its advertising practices and job placement claims. The shift prompted Corinthian to warn that it might go out of business.
Tarkan, who cut his target price for the stock to zero on the news, said the preliminary agreement reached last week provides only temporary relief.
Corinthian, which has claimed it’s cooperated with federal investigators, said it expects to reach a final agreement with regulators this week.
Two Buckets
Corinthian is expected to detail how it will sell or close campuses and programs once the final agreement is reached.
Programs that don’t attract a buyer would likely be closed after current students complete studies.
Wells Fargo analyst Urdan said it will be akin to having two buckets and deciding which campuses and programs go where.
“They’ll still exist as a corporate entity,” he said. “But they will divest themselves of all Title IV assets.”
Title IV covers the administration of the U.S. federal student financial aid programs.
Corinthian’s website lists four schools: Heald, Everest, WyoTech and QuickStart Intelligence.
Heald’s 12 campuses in California, Hawaii and Oregon are the most valuable, Tarkan said.
“It’s relatively better performing based on student outcomes,” he said.
Heald programs include medical, pharmacy, paralegal and networking technology fields.
Everest
Everest’s 100 campuses in the United States and Canada have the most problems, he added.
“Most of the [government] scrutiny is related to [that] franchise,” he said.
Everest offers training in subjects such as dental assisting, massage therapy and medical insurance billing and coding.
WyoTech’s six campuses may have value for “hard assets and equipment,” Tarkan said.
WyoTech trains in automotive, diesel, electrical and plumbing fields, among other areas.
QuickStart’s information technology programs are a small part of Corinthian’s lineup, he said.
The company faces another challenge because it also has guaranteed private some student loans made by a third-party lender, according to Tarkan.
“They’re going to have a tough time meeting all their liabilities.”
