CEDU Closing: Bankruptcy Trustee Slams Door Closed, Then Open

Most of the schools could have limped along, given that TIA offered financing. 

Institutions threatened by bankruptcy may be sold and reopened

Susan Drumheller
Staff writer
April 2, 2005

The biggest lender and secured creditor in the CEDU Educational Services bankruptcy case is now financing temporary operations until the private North Idaho behavioral schools can be sold and possibly reopened.

But the temporary financing came too late to keep students on campus.

Students with the ASCENT wilderness program had their backpacks ready for an 11-day trek in the Green Monarch Mountains Friday, March 25, when the announcement came that the trip was canceled and their outdoor intervention program was closing down.

CEDU and its parent company, The Brown Schools Inc., had filed for Chapter 7 bankruptcy, and liquidation proceedings were under way. About 300 people in North Idaho suddenly were out of work, while nationwide some 300 troubled students – 27 of them at ASCENT – lost their educational home.

"We had to figure out how to get the kids off the campus immediately," said ASCENT director Denise Forbregd.

The following day, when most of the students were gone, she and other managers learned from the bankruptcy trustee that operations could continue while he secured the financing and authority to temporarily operate the schools until they could be sold.

"I was devastated," Forbregd said. "I just sat there Saturday crying, knowing that we could have graduated seven kids."

One CEDU school, the King George School in Sutton, Vt., has been able to keep its doors open and students on campus throughout the last week. It was all a matter of timing and luck, said King George director Karen Fitzhugh.

"It was late in the evening here on the East Coast," she said, "so I made the decision not to up the apple cart with my students and staff, knowing it was going to be a very difficult day on Saturday."  The following day's conference call with the bankruptcy trustee was "what swung the tide for us," she said.

On Wednesday, a judge with the U.S. Bankruptcy Court in the District of Delaware signed an order authorizing a $1.5 million loan from The Brown Schools' primary lender, Teachers Insurance and Annuity Association of America (TIAA), for emergency temporary operations of the schools through April 22.

Justification for the order was that without it, school operations "will cease immediately and the Trustee would be compelled to force the remaining students to vacate the premises immediately thereby causing serious and irreparable harm," according to court documents.

That same day, Forbregd said goodbye to her last student.

"I personally was very, very angry," she said. "We had some families that were very devastated on the day before Easter. If we had known that Friday, we may still be operating."

As it is, ASCENT and the other CEDU schools in North Idaho can pay skeleton crews to clear out the campuses, get student files and transcripts in order and field phone calls while they wait and hope for good news from the bankruptcy trustee.

Meanwhile, trustee George Miller is being bombarded with phone calls at his Delaware law office, including several offers to buy the schools, he said. At King George, for instance, Fitzhugh and some parents have already formed a new corporation and made an offer to buy their school.

Similar efforts are under way with some of CEDU's North Idaho schools. But already established companies are lining up offers, too.  n"If a purchase price can be negotiated that's acceptable to me, I'll try to sell the schools," Miller said. Miller noted that he has to look out for the best interests of the creditors, however.

"I have to balance between how long to keep the schools operating and the highest and best offer," he said.

The last time the CEDU schools sold was in 1998 when The Brown Schools purchased them for $78 million, said Sam Singer, spokesman for McCown, Deleeuw & Co., the investment firm that later purchased The Brown Schools.

They were more likely worth $40 million to $50 million, he said. TIAA provided the bulk of the financing for the purchase of the schools, and the debt service – as well as legal expenses on outstanding litigation – did the company in, said Brown Schools CEO Fenton "Pete" Talbot.

Talbot joined the company's board of directors in January and became CEO just four days before the company declared bankruptcy. He said he had wanted to "save the company," but his plan to restructure and refinance the company through a Chapter 11 bankruptcy petition was dashed when the lenders – TIAA and McCown, Deleeuw – declined to provide the upfront financing to do it.

"When the banks said, 'We will not support the company,' we had no choice," he said. "We just didn't have the cash. We were totally out."

The Brown Schools owes McCown, Deleeuw $20 million and TIAA $19.7 million, plus the $1.5 million for the post-bankruptcy financing. The company also lists among its debts a $1.5 million arbitration settlement, $1.2 million for other legal fees and settlements, and an undetermined amount to 700-plus unsecured creditors.

While the bankruptcy trustee sifts through purchase offers for the best deals, CEDU's laid-off employees are filing unemployment claims and considering their options. Other private behavioral schools are recruiting skilled workers from CEDU, and one of CEDU's biggest competitors will hold a job fair next week in Bonners Ferry.

Advocates for purchasing and reopening the schools are hoping the skilled workforce isn't gone before they can get the schools up and running again.

"It's a great setting here for a wilderness program," said Forbregd at the ASCENT base camp, where the dominant form of architecture is the tepee. "We'd like to continue to operate it out of here."

CEDU Posts

Former CEDU Schools Reborn January 5 2007

• Update on CEDU Schools October 28 2005
• CEDU Properties Sold August 18 2005
• The Business of Troubled Teens August 18 2005
•  CEDU Closing: Buildings and Contents to be Sold May 8 2005
• CEDU Closing: On Edison Schools April 30 2005
• CEDU Closing: Pete Talbott's Resume April 27 2005
• CEDU Closing: McCown DeLeeuw Sued ByEmployees April 14 2005
• CEDU Closing: George Locker's Criticism of the CEDU Enterprise April 14 2005
• CEDU Closing: 1990 Snapshot of McCown DeLeeuw April 12 2005
• CEDU Closing: A Timeline of the CEDU Enterprise April 2005
• CEDU Closing: Letter from a Former Faculty Member April 2005
• CEDU Closing: Parents of CEDU Students Helping Economically Distressed Faculty April 7 2001
• CEDU Closing: Economic Impact on CEDU Employees Devastating April 7 2005
• CEDU Closing: 310 Employees Stiffed on Wages April  6 2005
• CEDU Closing: Who is To Blame? April 6 2005
• CEDU Closing: Running Springs Area Also Suffers Financial Impact April 6 2005
• CEDU Closing: An Alumnus Pleads, "Save CEDU!" April 4 2005
• CEDU Closing:  A Parent's Response to CEDU's Closing April 3 2005
• CEDU Closing: Bankruptcy Trustee Slams Door Shut, Then Open April 3 2005
• CEDU Closing: Parents Out Prepaid Tuition, Employees Lose Retirement. McCown Deleeuw Still Solvent April 3 2005
• CEDU Closing: King George Stays Open as Head Thinks on Feet April 3 2005
• CEDU Closing Shocks Industry Reporter April 3 2005
• CEDU Closing: Parent Company, Brown, Negotiating in Bad Faith?  April 1 2005
• CEDU Closing: More Details March 29 2005
• CEDU Closing: Brown Schools, CEDU's Parent, Files for Bankruptcy March 29 2005
• CEDU Closing: Margurite Sallee, The Brown Schools, and McCown DeLeeuw March 27 2005
• CEDU Closing: All CEDU Schools Closing Immediately March 25 2005
• CEDU Closing: Rocky Mountain Academy Folds Abruptly February 12 2005

Related Posts:

• Debunking "Tough Love" Programs April 11 2006
• Advice for Parents Seeking a Therapeutic Program for Their Children January 21, 2006
• Why The "Troubled Teen" Industry is Booming January 2, 2006
• The Road To Whatever August 25 2005
• Nonpublic School Governance April 23 2005
• Why Parents Seek and Pay for Therapeutic Boarding Schools April 14 2005
• NYT Article on the Therapeutic School Industry April 13 2005
• Therapeutic Schools: What Happens to Poor Kids April 10 2005
• Thinking of Sending Your Kid to A "Tough Love" Program?  March 30 2005

Questions Parents Should Consider Before Placing A Child

• NonPublic Schools: Part I--Overview
• NonPublic Schools--Part II Evaluating Mission, Values, & Goodness of Fit for Your Child
• NonPublic Schools--Part III Faculty and Staff Qualifications
• NonPublic Schools--Part IV: Evaluating Academic Program
• NonPublic Schools:Part V--On Accreditation
• NonPublic Schools:Part VI--More Detail on Financial Issues: IRS Status

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