ITT shares plunge 64 percent in wake of federal mandates

August 26, 2016

Shares in ITT Educational Services Inc. went into a freefall Friday, one day after the U.S. Department of Education banned the Carmel-based for-profit educator from enrolling new students who receive federal aid.

Investment analysts predicted that ITT isn’t likely to survive the decision.

The stock was down 64 percent from the opening bell in late-morning trading Friday, to 49 cents per share, and has lost 85 percent of its value since the beginning of the year. The stock traded at $8.35 per share two years ago and at more than $125 per share seven years ago.

The education department said Thursday’s decision was made after ITT fell out of compliance with its accreditor’s standards and “put its students and millions of dollars in taxpayer-funded federal student aid at risk.”

The ban is potential death sentence for ITT, which last year received 79 percent of its cash receipts from the federal student loan program.

The department also put other severe requirements on ITT, including a mandate that it boost its surety funds $247.3 million in the next 30 days. That follows an order from the department in early June that ITT increase surety funds from $79.7 million to $123.6 million.

Surety funds are held by the department in a Federal Holding Account and are used for liabilities related to investigations, including student refunds, student loan cancellations and other expenses if ITT closes campuses.

“Hard to imagine ITT can provide a doubling of required surety without new federally aided students,” Ben Miller, senior director for postsecondary education at the Washington, D.C.-based policy group Center for American Progress, said Thursday on Twitter. “This is probably the end.”    

In addition Thursday, the department said ITT is also required to develop “teach-out agreements” with other colleges that will let students complete their studies if ITT ceases operations.

ITT also is "prohibited from awarding raises, paying bonuses or making retention or severance payments to its executives or to paying special dividends or out of the ordinary expenditures without department approval," the department said.

ITT’s stock was downgraded Friday by Piper Jaffray, which predicted the 70-year-old company wouldn’t survive the ban. Barrington Research Associates also downgraded the stock.

The “ban on ITT Educational enrolling new students will likely be the final blow in putting the company out of business,” Piper Jaffrey analyst Peter Appert wrote in a report. “While ESI can likely maintain near-term profitability by further slashing costs, given a ban on new enrollments, the company will very quickly become unprofitable, likely forcing shutdown and/or bankruptcy, in our view.”

ITT did not respond to a request for comment about the ban.

ITT was founded in 1946 as Educational Services Inc. and has been headquartered in Carmel since 1969. It filed its initial public offering in1994.

The company reported revenue in the latest quarter of $191.5 million, down almost 17 percent from the $230 million the company brought in a year ago.

Total student enrollment decreased 15.4 percent, to 43,293, as of March 31, compared with 51,201 as of March 31, 2015.

ITT operates more than 130 ITT Technical Institute campuses in 38 states.




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