We barely bat an eyelash these days when a PE-backed company goes bankrupt, given the toxic mixture of economic shrinkage with massive debt loads. But we really need to take notice of what’s going on over at the (former) Connecticut School of Broadcasting, because it’s morally reprehensible.
CSB was a career college founded in 1964, with a focus on training students interested in radio or television. DLJ Growth Capital Partners, an affiliate of DLJ Merchant Banking, bought a majority stake in the company less than three years ago, in a transaction valued at approximately $50 million (around half in equity)
Under DLJ’s ownership, CSB quickly began adding new campuses. Under the economic downturn, however, it also began struggling to meet looming debt payments from lender PNC Financial.
A source says that DLJ repeatedly reached out to PNC about some sort of refinancing arrangement, but that it was unable to get a reply (I know, sounds a bit far-fetched). Then, in early March, CSB management suddenly realized that its checks were bouncing. The reason was that PNC had siezed the company’s assets, without first informing either the school or DLJ Growth Equity. On March 5, CSB notified students that all 26 of its campsuses were being shuttered, effective immediately. This included students who were in Week 15 of a 16-week course, for which they had paid around $12,000.
In a statement, CSB president David Banner said: “I am also disappointed that the actions of our lender precipitated this sudden disruption in the lives and careers of our students and employees.”
DLJ isn’t commenting on the situation, but it’s safe to assume it shares Banner’s sentiments. PNC also isn’t talking, but it’s obstinance goes one step further: A PNC spokesman on Friday wouldn’t even confirm whether it had lent money to CSB in the first place. I came very close to yelling at him, before deciding it would be better to simply write that his response reeked of cowardice and irresponsibility.
Hey Mr. Spokesman: This isn’t just about CSB employees getting let go without a moment’s notice (which did happen). It’s about students who paid for something and didn’t receive it. They got ripped off, and you’re ultimately to blame. Think it’s hard for these kids to get a job in broadcasting right now? Think of how much harder it is without a diploma or their $12,000. I’m not saying that you shouldn’t have seized the assets — I’m saying you should have waited a week for the semester to end (maybe you could have used some of that TARP money).
PNC still could salvage some dignity by making the students whole. So could DLJ, even if it doesn’t seem to be the worst actor here. Sometimes the most responsible thing to do is to take responsibility, even if you don’t believe it’s your’s to take.