NEW YORK (AP) -- Corinthian Colleges tumbled more than 10 percent in Monday trading on worries that the for-profit education company will be subjected to additional monitoring and will need to post a letter of credit to maintain access to federal financial aid for students.
THE SPARK: Corinthian said in a regulatory filing Monday that the Department of Education calculated its financial responsibility composite score for the fiscal year ended June 30 at just 0.9.
If an educational institution's composite score falls below the minimum threshold level of 1, it can be subject to additional monitoring and reporting procedures and can be required to post a letter of credit in order to continue participating in federal student financial aid programs. In Corinthian's case, that letter of credit would be equivalent to a minimum of $175.7 million.
The company's debt agreements also require a minimum score of 1.5.
But Corinthian said that excluding a $203.6 million impairment charge it took in 2011, it actually posted a composite score of 2.1. Corinthian said that federal officials have agreed to meet with company officials and discuss the issues.
The Santa Ana, Calif., company said it also expects to submit its final 2012 financial results in the next several weeks, which it said shows its composite score for that fiscal year to be 1.5. If the Department of Education determines that Corinthian's composite score is 1.5 or higher, the company said it might not have to submit a letter of credit.
THE BIG PICTURE: For-profit education companies like Corinthian Colleges Inc. — which operates Everest, Heald and WyoTech colleges and offers online degrees — have struggled for more than a year as a result of new government regulations and increased scrutiny.
As part of those regulations, the companies must submit their annual financial statements to the Department of Education which uses them to calculate the composite score. The score determines whether the companies are in compliance with the government's financial responsibility standards.
THE ANALYSIS: BMO Capital Markets analyst Jeffery Silber backed his "Market Perform" rating for the company, saying that after speaking with Corinthian's management he doesn't expect that the company will be required to immediately post the letter of credit.
Silber added that the low 2011 probably did stem from the impairment charge, which means that the company's 2012 results, which didn't include an impairment charge, will likely result in a score close to the 1.5 the company calculated and bring it back into compliance.
THE SHARES: Down 27 cents, or 10 percent, to $2.47 in afternoon trading, after dropping as low as $2.45 earlier in the day. Over the past 52 weeks, the company's shares have traded between $1.74 and $5.21.
Since the beginning of this year, the shares have gained about 26 percent.
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