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ITT Educational Services Inc. Message Board

  • aaatiles aaatiles Apr 24, 2008 6:14 PM Flag

    Debt to Equity Now at 343%, up from 212%

    12-31-07
    Debt $150.0 million
    Equity $70.7 million
    DTE ratio 2.12 [already the highest in the industry, next closest at 0.60]

    3-31-08
    Debt $150.0 million
    Equity $43.7 million
    DTE ratio 3.43 [now the highest in the industry by a wide margin]

    3-31-08
    shares outstanding 39.1 million

    3-31-08 Book Value per share $1.12
    Trading at $67/share 4-24-08

    Price-to-Book Ratio: 60 !!! [ASTONISHING]

    The credit facility interest rate and collateral requirements are based on such things as debt-to-equity, adjusted quarterly. What do you think is going to happen to the interest rate now that equity went down and DTE went up? Wow, higher borrowing costs, who would have thought. ESI had $158 of its short-term investments pledged as collateral at 12-31-07 against this credit facility. Will the lender require more collateral as a result of the deterioration of equity?

    Please, someone honestly address this issue since it has been avoided since the first day I began posting.

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    • sponge_bob_square_pants500 sponge_bob_square_pants500 Apr 24, 2008 10:50 PM Flag

      I am not sure you understand the dynamics between various capital structure options (ie financing with debt versus equity). Would you rather they do a secondary offering and pay off the debt? The effect would be a big increase in capital and a decrease in debt, thereby increasing their perceived capital position. Instead of paying interest, they earn a return on the debt.

      Maybe for ITT, they view the cost of debt to be a better deal with the low interest rates than the cost of capital through a secondary offering.

      I do not think this is necessarily a capital intensive business. It is more of a cash flow business and cash flow ratios are more important. I hope this helps.

      • 2 Replies to sponge_bob_square_pants500
      • Isn't it too bad that's all they are worried about and not the wealth of education they are supposed to be instilling in the minds of students. All they care about is the amount of money they can make and put in their pockets. I thought this was an Educational For-Profit company. The mistake the government made was to allow for-profit educational institutions, they should have left it at Not-for-Profit institutions. Education should not be a profit making mechanism if we really gave a shit.

      • sponge_bob_square_pants500 sponge_bob_square_pants500 Apr 24, 2008 10:59 PM Flag

        I have a typo in my previous post. My point is that you have to earn a return on your capital, whether that be debt or equity. I think most of the equity was used to buy up treasury stock the past few years.

        Regardless, the key is earning a return on your capital whether that be debt or equity. AAA, you are getting to caught up on this one ratio. Just my humble opinion.

 
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