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Corinthian Programs Could Command $140M

Corinthian Colleges Inc.’s selloff of schools and programs and its closing of campuses could bring in as much as $140 million.

“The value of the asset is in the accreditation,” said Trace Urdan, a senior analyst with San Francisco-based Wells Fargo Securities, the largest institutional owner of Corinthian shares, with a stake of about 13%.

Accreditation gives an acquiring company access to students receiving financial aid.

Santa Ana-based Corinthian enrolls 72,000 students who receive $1.4 billion in federal aid annually.

Ironically, rules and processes related to federal financial aid helped bring Corinthian to this point.

The Education Department and other federal agencies were investigating its advertising and whether it had misled students, and the department said Corinthian had not complied with requests for information on student job placement.

Corinthian said it cooperated with the investigations, hadn’t misled students, and had complied with requests.

After the department said it would delay drawdowns by Corinthian of its students’ financial aid, the company said on June 19 that it might go out of business.

Within days, the department agreed to release $16 million in federal financial aid funds, and Corinthian lenders agreed to release the remaining $9 million in credit available while the company and the department crafted a plan for Corinthian to sell schools and programs and close campuses.

On July 3, the department and Corinthian announced that plan, and the department agreed to provide an additional $35 million of the company’s financial aid allotment.

The plan—including hiring an independent monitor, halting enrollment at schools being closed, communicating with students, and setting up a $30 million reserve account for student refunds—took effect July 8. Last week, law firm Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates and former U.S. Attorney Patrick Fitzgerald were named as the independent monitors.

$140 Million

Corinthian plans to sell schools and programs at most of its more than 100 campuses in the U.S. and Canada.

It’s closing 12 schools in 11 states with about 3,400 of its 72,000 students. None of the schools is in California.

Corinthian’s three main brands are Heald, Everest and WyoTech.

Heald programs include medical, pharmacy, business administration, paralegal and network technology fields. Everest teaches in areas like dental assisting, massage therapy, and medical insurance billing and coding. WyoTech trains in the automotive, diesel, electrical and plumbing fields, among others.

Heald is thought to be the most valuable, WyoTech is also attractive, and Everest is the largest, Urdan said.

A fourth brand, QuickStart Intelligence, is an online test preparation program worth about $1 million, he said.

The other three could command between $20 million and $70 million each, according to Urdan’s report, which valued Corinthian’s various online offerings at about $10 million.

Schools and programs may also have value in curriculum, equipment, and market locations.

Heald, in just three states, and WyoTech, in four, could each be sold as complete units, Urdan said.

Heald also has good accreditation, while WyoTech has hard equipment, plus programs in growing fields.

Everest might be broken up and bought by several suitors, Urdan said.

One way to value for-profit school operators is a per-student number relative to market capitalization, he said, adding that on that basis his estimates were conservative while accounting for the “fire-sale” atmosphere and other factors, such as the three brands’ reputations in their industry areas.

His report also acknowledged uncertain costs related to ending programs at the schools to be closed; whether online programs could be sold easily; and an unknown future cost of litigation.

A spokesperson for the company said Corinthian had been contacted by “a variety of bidders, from large to small,” but declined to comment further.

Office Space

In June 2013, Corinthian was leasing all but four of its facilities, about 5.3 million square feet companywide, according to regulatory filings.

Most of the leases have five- to 10-year terms.

Over the years, it has done sale-leasebacks on some buildings.

For instance, in 2011 it raised nearly $40 million on property acquired when it bought Heald in 2010.

Now there is essentially no real estate equity in the campuses themselves.

Urdan said certain schools and programs might be more attractive to buyers based on a coveted location.

Two years ago, Corinthian signed a new lease for 163,734 square feet at its Griffin Towers headquarters in Santa Ana, about a third of the 547,230 square feet at the two towers. It got favorable terms on rent and early termination compared to its previous lease.

Now rates for Griffin Towers are about $2.25 per square foot, according to CoStar Group Inc., 15% to 20% higher than when Corinthian signed the lease.

Equity Office Management LLC, a unit of New York-based private equity giant Blackstone Group, bought Griffin Towers in March for an estimated $130 million, the Business Journal reported then.

It was 90% leased at the time.

The Corinthian spokesperson said it was “way too early to talk about” what the company would do with its lease as it requires less space.

The company’s debt tripled in one year to nearly $101 million as of March 31, and it had only $28 million in cash as of May 6, according to reports. It reported a $79.6 million loss on a 12% drop in revenue in the first quarter.

On July 7, it received a delisting notice from NASDAQ.

At the time it signed its new lease, Corinthian had a market value of $185 million. By February, that had dropped to $114 million.

Last week, its market cap was $18.4 million.

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