ITT Tech just provided its first update on how it’s trying to survive

Sept. 02--The company that runs ITT Technical Institute is asking for leniency from the federal government as its prospects for survival become more dire.

ITT Educational Services Inc. disclosed Thursday that it has received a letter from insurer Chubb informing the company that Ace American Insurance Co. is moving to cancel a $19.8 million line of credit. Ace is requiring ITT to post collateral for the full amount within 30 days to avoid cancellation.

The demand comes as ITT is under pressure to increase its access to credit. The U.S. Department of Education last week imposed several sanctions on ITT, including a requirement that it boost its reserves from $94.4 million to $247.3 million. Analysts have said that could be a death knell for ITT, which in July reported having $78 million on hand.

Ace's request for collateral from ITT "means there's an even greater burden on the cash they have on their balance sheet, so it simply intensifies the pressure," said Trace Urdan, a Credit Suisse analyst who follows ITT. "It's a little bit of Chinese water torture."

Yet ITT also offered a glimpse into its effort to stay afloat. ITT said in a Securities and Exchange Commission filing that it is trying to negotiate with the Education Department to lessen the sanctions handed down Aug. 25. The for-profit college chain is seeking terms that would allow it to continue its operations.

"The Company is continuing to evaluate all options available ... and has contacted the (Education Department) to request that the ED consider possible alternatives to the ED's positions and requirements," ITT wrote in the filing.

ITT did not describe the terms it is seeking. Company spokeswoman Nicole Elam did not elaborate.

"We expect to have additional information in the next several days," Elam wrote in an email.

In addition to the requirement for increased reserves, the government last week banned ITT from enrolling new students who rely on federal aid and blocked ITT executives from getting raises or severance packages without approval. The moves came amid investigations from federal agencies and about 20 state attorneys general offices into ITT's financial management, recruiting tactics and job placement numbers.

ITT this week ceased all new enrollment. Elam did not respond to a question about whether ITT's new academic quarter will begin Sept. 12 as scheduled. ITT holds four 12-week academic quarters per year. The current quarter ends Friday.

Although Urdan didn't rule out the possibility that ITT would persist into a new quarter, he said a bankruptcy filing could come as early as next week.

"The obligations on that cash they have are stretched pretty thin," Urdan said. "When you add up the additional requirements from the Department of Education, this new requirement and the ability to make payroll every couple of weeks, the strain is tremendous. I can't definitely say they can't do it, because that would be overstating my knowledge of the situation. But it certainly seems less and less likely."

ITT's disclosure that it has reached out to the Education Department marks the first time the company has revealed any strategy in response to the government's devastating sanctions. ITT noted, however, that it "cannot provide any assurance that the ED will respond to the Company's requests in a favorable manner or at all."

An Education Department spokesman declined comment.

ITT offers on-campus and online classes in business, nursing and health sciences, electronics and information technology. It had 137 campuses across 39 states and more than 40,000 students at the end of June.

While ITT could be making an earnest attempt to stay in business, Urdan said the company hasn't provided enough information for anyone to draw that conclusion. Ace's demand for collateral is a bad sign, he said.

"This is another step towards what a lot of people think is inevitable, which is a bankruptcy filing," Urdan said. "They certainly seem to be trying to hold that off. There are obviously reasons not to do that right away."

Reasons to postpone a bankruptcy filing could include taking additional time to negotiate students' credit transfer terms with other colleges and allowing employees to receive an extra paycheck, Urdan said.

But those reasons also could include executives milking more money for themselves before ITT collapses.

"There are very few saints over there, so yeah," Urdan said. "One hopes that they're approaching the situation responsibly."

Call IndyStar reporter James Briggs at (317) 444-6307. Follow him on Twitter: @JamesEBriggs.

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