Education Management Corporation, one of the largest providers of post-secondary education in North America, has finalized a Restructuring Support Agreement previously announced on Aug. 27, 2014. Creditors holding in excess of 94 percent of the company's aggregate debt (including Lenders holding in excess of 98 percent of the company's existing secured bank debt (the "Consenting Lenders")) and the company's principal shareholders have signed the agreement.

"We believe the strong support of our lenders, note holders and principal shareholders for the restructuring will provide us with a capital structure that better aligns with the current operating environment," said Mick J. Beekhuizen, Education Management CFO. "We appreciate the cooperation demonstrated during this process and look forward to continued cooperation by the parties to successfully implement the restructuring."

Phase one of the restructuring will reduce the company's funded debt by approximately $1.1 billion, providing for the exchange of approximately $1.5 billion of outstanding debt as of June 30, 2014 for $400 million of new debt, non-voting preferred equity interests that would be convertible into common shares and warrants for the purchase of common shares.

The company intends to offer note holders that have not been party to the restructuring discussions and/or that have not signed the Restructuring Support Agreement the chance to participate in the restructuring, but the support or participation of additional creditors is not a condition precedent to implementing the Restructuring Support Agreement.  Subject to applicable regulatory approvals, the company anticipates closing phase one by no later than Oct. 30, 2014.

Phase two of the restructuring, whereby a portion of the new preferred stock will be mandatorily converted into common shares, and the remainder become convertible at the election of the holder, remains subject to applicable regulatory approvals and a shareholder vote.  The company expects to complete phase two of the restructuring in 2015.

The company's existing shareholders would retain 4 percent of the outstanding common stock after giving effect to the conversion of the new preferred stock and receive warrants to purchase an additional 5 percent of the common stock.

In connection with the restructuring contemplated by the Restructuring Support Agreement, the company and the Consenting Lenders have executed an amendment to the company's existing senior secured credit facility and the company and certain note holders have executed an exchange agreement in respect of approximately 86 percent of the company's existing unsecured notes.

Pursuant to the terms of the amendment to the credit facility, all financial covenants have been waived through June 30, 2015, cash interest expense and required amortization payments have been substantially decreased through June 30, 2015, and the maturity of the revolving credit facility has been extended to July 2, 2015.  In addition, the collateral proceeds waterfall set forth in the pledge and security agreement entered into in connection with the credit agreement has been amended to provide that obligations owing to lenders that are not Consenting Lenders will be paid only after satisfaction in full of obligations owing to lenders that are Consenting Lenders.

Pursuant to the terms of the exchange agreement, participating holders of the company's existing senior unsecured notes have exchanged their notes for new notes the terms of which provide for the payment of interest in kind (rather than in cash) through and including March 31, 2015.

EDMC was advised by Evercore Group L.L.C., Wachtell, Lipton, Rosen & Katz, and McKinsey & Company. The ad hoc group of term lenders was advised by Houlihan Lokey Capital, Inc. and Milbank, Tweed, Hadley & McCloy LLP. The ad hoc group of revolving lenders was advised by FTI Consulting, Inc. and White & Case LLP. The ad hoc group of senior noteholders was advised by Houlihan Lokey Capital, Inc. and Paul, Weiss, Rifkind, Wharton & Garrison LLP.

Education Management Corporation, with approximately 119,500 students as of April 2014, is among the largest providers of post-secondary education in North America, based on student enrollment and revenue, with a total of 110 locations in 32 U.S. states and Canada.