Dive Brief:
- A federal bankruptcy judge approved 2U’s Chapter 11 bankruptcy plan on Monday, clearing the way for the online program manager to restructure and go private.
- The plan converts some $527 million in debt, in the form of unsecured notes, into ownership interest in the reorganized company, which would more than halve its debt load.
- Once the plan becomes effective, on or before Sept. 13 per the current plan, 2U is set to cancel the 2.9 million shares in the company currently outstanding. Last week, the Nasdaq moved to delist 2U’s stock as the company heads toward private ownership.
Dive Insight:
2U entered bankruptcy in July with a deal already secured with a critical mass of lenders that would give the struggling OPM some debt relief as it continues to rightsize its business. That deal paved the way for a relatively quick, smooth path through Chapter 11.
After launching its first program in 2009, 2U underwent rapid growth as it helped university clients develop new online degree programs. The OPM put up capital and took over technology and services like marketing ad analytics for universities in return for a share of the revenue — typically around 60%.
The company went on to expand into short-term and alternative credential programs. That expansion culminated with a $800 million deal for edX, a MOOC platform, in 2021. The deal promised to greatly expand 2U’s offerings while creating cross-marketing opportunities. It also added a hefty debt load to the company’s balance sheet.
After rapid revenue growth during the pandemic as colleges turned to online education, 2U’s fortunes fell. Some of its university partnerships, including a key one with University of Southern California, were downsized or broken up. That contributed to revenue declines and increasing financial distress for the firm.
When it filed for bankruptcy protection in late July, CEO Paul Lalljie said in a statement “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.”
In its most recent monthly operating report, filed on Sept. 4, 2U posted an operating loss of $17.7 million for July and a net loss of $63.4 million, after logging nearly $40 million in expenses related to its bankruptcy and reorganization.
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