Dive Brief:
- 2U Inc. filed for Chapter 11 bankruptcy Thursday with plans to restructure, reduce its debt load and wrap up the process by September.
- On filing, the online program manager had an agreement with lenders and bondholders representing about 87% of its outstanding debt that would provide about $110 million of new capital and more than halve its debt to some $459 million, according to a press release. The deal will require court approval.
- The company has been struggling in recent years under a heavy debt load, much of it taken on to support its acquisition of edX, and as demand for its services has waned.
Dive Insight:
2U has come under increasing financial distress as its revenue declined, in part because some of its university clients, such as University of Southern California, have scaled back their relationships with the OPM.
On filing for Chapter 11, 2U said its restructuring agreement with lenders would position it to innovate and grow.
“The steps we are taking today will enable us to continue investing in our offerings, services, and world-class team to deliver unparalleled online learning to meet the needs of students today,” CEO Paul Lalljie said in a statement.
While the company works through the bankruptcy and restructuring process, all of its programs will proceed as “planned with no impact or disruption to learners as a result of this process, and 2U will continue providing all services for partners and students,” the company said.
After becoming a publicly traded company a decade ago, 2U is set to become private again through the bankruptcy process.
Certain debt-holders would receive equity in 2U in return for canceling debt as part of 2U’s restructuring plan. Backers of the reorganized company would include Mudrick Capital Management, Greenvale Capital and Bayside Capital.
The firm has an agreement with lenders to provide $64 million in financing to support its operations through the Chapter 11 process.
Founded in 2008, 2U helps colleges create and manage online programs in return for a share of their program revenue. It has worked with clients to develop over 180 online degree programs.
With online learning booming during the COVID-19 pandemic, the company in 2021 acquired the MOOC provider edX for $800 million.
In court papers filed Thursday, Matt Norden, 2U’s chief financial and legal officer, noted that the edX acquisition — and the debt taken on to support it — came just before a “decline in demand for online learning worldwide as potential students sought to return to campus, in-person work, and in-person social activities.”
Norden also pointed to a decline in entry-level technology jobs — as tech firms began shedding jobs with waning of the pandemic — along with the “rapid and unanticipated adoption of artificial intelligence.” Norden pegged both of those trends to a decline in demand for 2U’s coding bootcamps.
Concerns about 2U’s finances have been growing for months. In February and early March, 2U issued its first “going concern” warnings about its ability to stay solvent and continue operating in documents filed with the U.S. Securities and Exchange Commission.
A spokesperson with the U.S. Department of Education told Higher Ed Dive in March that it was “concerned” about the impact a potential financial failure of 2U and other online program management companies would have on students.
