The federal government’s cutoff of funding to Corinthian College could force the sale and closure of more than 100 US schools, putting about $219m worth of CMBS loans at risk.
The embattled Santa Ana, California-based for-profit college operator, which operates 107 campuses, signaled that it might shut down after the US Department of Education imposed a 21-day waiting period on the company’s access to millions of dollars in federal aid, which reportedly accounts for at least 80% of company revenue.
The news sent the company’s stock price plummeting 67% on Thursday 26 June, while information from research and data group Trepp shows that 18 loans backed by Corinthian institutions – including those with Everest, WyoTech and Heald branding – would be at risk in the event of school closures.
“If the borrower loses that revenue and they’re not able to re-tenant the space, the overall value of the property will fall,” Joe McBride, a research analyst at Trepp, tells Real Estate Capital. “The borrower’s ability to continue servicing their debt would be in doubt.”
The largest loan with exposure is the $34.2m Spectrum Commerce Center (collateralizes 1% of MLCFC 2007-5), a 289,595 square-foot office building in Eagan, Minnesota. The Corinthian exposure there is small, as it occupies less than 10% of the space.
More troublesome, however, is the fact that Corinthian is the top tenant on several other loans. For example, it occupies 41% of the space of a $12m Henderson Beltway Office Center loan (1.9% of TIAAS 2007-C4).
If Corinthian closes unexpectedly, well before its 2020 lease termination at that location, the borrower on the loan would lose 41% of revenues and be unlikely to cover debt payments, likely leading to default, McBride said.
Federal regulators have accused Corinthian of falsifying job placement rates and misleading students about financial aid obligations, with students at the company’s schools defaulting on federal loans at some of the country’s highest rates.
The Education Department has reportedly agreed to give Corinthian $16m in federal funds so it can continue to operate as it forges a plan to sell some schools and gradually close others.