Cerberus to Finance ITT Tech Bankruptcy Cleanup

The bankruptcy trustee mopping up after the collapse of ITT Educational Services Inc. has lined up $6 million worth of financing for the cleanup effort.

Loans are coming from finance affiliates of Cerberus Capital Management, an existing lender to the failed for-profit educator, operator of the ITT Tech chain. Lawyers for bankruptcy trustee Deborah J. Caruso say the cash is desperately needed, as the trustee can't do much without funding. A bankruptcy judge in Indianapolis will review the loan at a hearing next week.

ITT Tech shut its doors abruptly in September, after federal education authorities cut off its access to taxpayer-backed loans. The sudden closure was a shock to some 40,000 students enrolled for the fall semester and some 8,000 employees.

At the time, the company and its leaders were trying to fight off lawsuits accusing them of misleading investors and students, promising more than ITT Tech could deliver.

Instead of a planned shutdown under chapter 11, ITT Tech was tossed into a bare-bones chapter 7 bankruptcy, with an independent trustee, Ms. Caruso, making the decisions that once were the province of management.

One of Ms. Caruso's chief tasks is to assemble the company's records, including the transcripts thousands of students need for job searches or continued education, and cashing out the assets.

She is also on the front lines of ITT Tech's leftover battles with the Consumer Financial Protection Bureau, the Commonwealth of Massachusetts and the State of New Mexico, which sued ITT Tech before the bankruptcy.

Cerberus is conditioning the bankruptcy loan on the sale of at least $33 million worth of abandoned campuses by the end of March 2017. ITT Tech's real estate is already being marketed, and estimates are it could bring from $70 million to $100 million—more than enough to pay off what Cerberus is owed, about $22 million, as well as the bankruptcy financing.

In addition to borrowing power, Cerberus has agreed to allow Ms. Caruso use of the cash in ITT Tech's coffers during the bankruptcy. As secured lender, Cerberus is entitled to claim the company's cash as collateral for its loans.

Write to Peg Brickley at [e-mail]

(END) Dow Jones Newswires

October 28, 2016 13:35 ET (17:35 GMT)

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