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Waiver OK'd for Education Management

| Tuesday, June 24, 2014, 12:01 a.m.

Education Management Corp., the for-profit college operator partly owned by Goldman Sachs Group Inc., received lender consent to waive covenant requirements on its credit agreement, according to a regulatory filing.

The limited waiver applies until Sept. 15 to any default related to violation of leverage terms in the credit pact, according to the filing. Chief Financial Officer Mick Beekhuizen said on a May 1 earnings call with investors and analysts that Education Management had hired a financial adviser because it will “likely not satisfy” terms of its credit accord this quarter.

Education Management is poised for a third-consecutive year of revenue declines as regulators investigate marketing and enrollment practices at for-profit colleges. The Pittsburgh-based company has $1.3 billion in borrowings and was in violation of its interest-coverage requirement at the end of last quarter, according to a May 8 filing.

“The waiver allows us to continue ongoing discussions with lenders,” Tyler Gronbach, a spokesman for Education Management, said. “That will allow us to finalize a capital structure, more in line with current market conditions.”

The operator of institutions including Argosy University and Brown Mackie College has hired Evercore Partners Inc. to lead talks with lenders, according to a person with knowledge of the situation who asked not to be identified, citing lack of authorization to speak publicly.

The company's credit agreement mandates that its leverage ratio must not exceed 3.5 times and its interest coverage ratio must be at least 2.75 times. The leverage measure is the ratio of debt to earnings before interest, taxes, depreciation and amortization, while the coverage barometer is Ebitda to interest expense.

In exchange for the waiver, the company must expand lender access to collateral, with the addition of certain subsidiaries to the loan's list of credit parties within 30 days, according to the filing.

Education Management's $731 million of first-lien loans maturing in June 2016 have dropped more than 24 cents this year to 71.9 cents on the dollar, according to data compiled by Bloomberg.

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