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ITT Educational Services Inc. Message Board

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  • aaatiles aaatiles Mar 20, 2008 4:03 PM Flag

    To Investors - A Summary

    Continued from Part 1

    The company has already pledged $158 million of collateral (probably the land and the building but it didn't clarify) for the $150 million outstanding debt.

    If you had money to lend, even at 12% to students with no collateral and a more-than-average chance of default than the general population, would you lend money? I most certainly wouldn't. Even AMBAC got 14%. At $455/credit hour AND potentially sky-high interest rates to students, can you explain to me how it is possible that revenue will continue to increase in light of the SLM discontinuation?

    ESI is already the highest leveraged for-profit education company at 2.13 debt-to-equity. I think the next closest one is at 0.6. There is not much wiggle room for this company to the upside, considering the aforementioned information.

    If management can't find a replacement lender soon for 29% of its revenue stream, they will have to revise earnings down, probably in May. If 2008 and 2009 forecasts then drop to $2/share, the stock MIGHT be worth 13X forward PE or 26. And the market will move it there, if that happens. Then when the market really digs in and takes notice of the leverage and treasury stock at book of $43/share when the actual price moves to $26, it will most likely plummet from there as everyone realizes no one will lend ESI any more money and its capital position is seized up. And the other for-profit companies will idly stand by and let it die and maybe somebody like DeVry will come in at a low-ball price of $5/share to pick up the scraps. DeVry wouldn't need the burden of all of the locations, just some of the instructors since DeVry already has its own locations. I only mention DeVry because of their technical background not because anything is in the works with ESI.

    It is not entirely implausible that such events could happen. Is that enough for you for now? Tell me, can I see your research and analysis or do you even have any?

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