TRIBLIVE: EDMC debt restructuring decision detailed

Career College Central Summary:

  • Concern about the impact on students factored into a federal judge's decision to deny two hedge funds' attempt to block a debt restructuring deal for Education Management Corp., even though she said their claims had merit.
  • In an amended order filed Tuesday, U.S. District Judge Katherine Polk Failla in Manhattan explained why, two weeks ago, she denied the preliminary injunction sought by New York-based Magnolia Road Capital and Connecticut hedge fund Marblegate Asset Management.
  • The case offered a rare example of when considerations of the public good weighed into a contract dispute between two companies.
  • Magnolia Road Capital and Marblegate were justified in their complaint against the downtown operator of for-profit colleges, Failla wrote. And if they pursued the case, they would probably win, she said. Magnolia last week dropped out of the lawsuit without explanation.
  • But recouping their combined $20 million investment in EDMC did not outweigh the larger harm that could be caused by blocking the $1.5 billion debt restructuring deal. The deal helps EDMC, which has 20,800 and 118,090 students, overcome a major financial hurdle that threatened its stability.
  • And given that the hedge funds still had other options for recouping some of their investment, including by joining the agreement, Failla declined to “introduce a highly disruptive injunction into the delicate regulatory and financial ecosystem in which the parties operate.”
  • “(T)here is little question that the harms on (EDMC's) side of the ledger vastly outweigh those on the plaintiffs',” Failla wrote.
  • EDMC and Marblegate declined to comment Wednesday. A status conference on the case is scheduled for Jan. 6.

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