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.

Click through to read the full article.

TRIBLIVE