Dive Brief:
- 2U, a publicly traded ed tech firm, announced financial moves this week that push back the maturity date for a term loan by two years and enable the company to save an expected $10 million in interest payments each year.
- The company announced that it has refinanced a term loan with an outstanding balance of $567 million, extending the maturity date from December 2024 to December 2026. Although the new term loan has a “slightly less favorable" interest rate, 2U is also paying off a large chunk of the debt, lowering the company’s annual interest expenses, according to a note from William Blair, an investment banking firm.
- 2U is paying off around $187 million of the loan through debt equity and $60 million in cash from its balance sheet. The moves are meant to strengthen the company’s credit profile and focus more on reorienting the business around its edX MOOC platform, according to the company’s announcement.
Dive Insight:
2U’s debt refinancing comes after the company conducted across-the-board layoffs this summer, reducing spending on personnel by 20%. Officials said the cuts were needed as the company focuses on making edX, its public-facing brand. Tough economic conditions were one catalyst for reorienting around edX, according to company leaders.
2U snapped up edX in late 2021 for $800 million, part of which was financed through the term loan that's now being modified, according to the note from William Blair.
The edX acquisition has been key to the company’s new strategy. Although 2U built its brand by helping top-ranked colleges launch and run online graduate degrees as an online program manager, in recent years it has expanded into alternative credentials such as short courses and boot camps.
2U is now promoting its degree programs on the edX platform, a move it hopes will reduce its overall marketing spending. It’s also focused more on turning a profit.
However, 2U has never posted a profitable year since going public in 2014. It’s also amassed more than $1 billion in debt and liabilities. William Blair analysts expect 2U’s recent financing actions will reduce 2U’s debt from roughly $948 million to $907 million.
2U had been facing some investor concern regarding the debt on the company’s balance sheet, Jeff Silber, a senior analyst at BMO Capital Markets, said in an email Monday.
“The recent restructuring gave them a bit more wiggle room by reducing some of its cash outflow,” Silber said. “This goes even further since it reduces annual interest expense and extends the life of the loan.”
2U’s ability to refinance its debt — despite concerns about an economic slowdown — suggests that the debt markets still view the company as a “strong enough business” to support its debt levels, Daniel Pianko, managing director at Achieve Partners, a private equity firm, said in an email Monday.
2U’s stock price closed at $7.37 on Monday following the announcement, up 14.4% from Friday. However, that’s still less than one-tenth of what it was in 2018. Other prominent ed tech companies, including Coursera, have seen similar declines in their share prices, as they face tough economic conditions.
