Lessons for Academic Leaders from Modern Restructuring Practice

Abstract

Financial distress has hit higher education. More and more universities and colleges are facing existential challenges as the competition for a dwindling number of students has put a strain on revenues. Unlike leaders in other industries, the presidents and chancellors of a financially distressed institutions of higher education cannot explore the possibility of a Chapter 11 filing under the Bankruptcy Code to restructure their obligations so that they align better with their revenues. Federal law prohibits Title IV loans – the lifeblood of virtually every university and college – from being made to students who attend a school that is in an insolvency proceeding. Yet academic leaders can take lessons from modern Chapter 11 practice: they can, in advance of financial distress, ensure that their boards of trustees have members who can provide advice to the schools’ leaders as to the difficult choices that they face; they can employ restructuring professionals who have experience in turning around operations without a bankruptcy filing; finally, given that many of these institutions have relatively few creditors, they can attempt to negotiate a restructuring support agreement that would restructure the schools’ debts without a bankruptcy filing. The options available to leaders in the higher education space are not as robust as the options available to leaders of private enterprise, but they do exist and can be useful in confronting financial distress.