2U / edX Deals with Financial Distress, Although It Might Avoid Bankruptcy

IBL News | New York

2U, owner of edX.org, is running out of cash and is facing an existential change in 2024, wrote educational analyst Phil Hill in a report issued after the company’s long-time CEO and Co-Founder, Christopher “Chip” Paucek, stepped down and was replaced by the existing CFO, Paul Lalljie [in the picture].

“There is no apparent way for 2U to meet its debt obligations by 2025,” Phil Hill stated.

“The company will likely survive, but it will undergo some significant changes from bankruptcy, from selling off assets, from additional layoffs, or more likely from some combination.” 

2U market capitalization was $107 million yesterday. In the last year, the company lost

“Bankruptcy is increasingly likely. 2U could pursue a structured bankruptcy in 2024 to alleviate its debt obligations while continuing to operate the company. Keep in mind that we have seen EdTech companies successfully manage bankruptcy, such as Cengage from 2013 / 14. There are signs that the markets already understand 2U’s situation.”

The probability of bankruptcy is over 58%, according to an analysis mentioned by Phill Hill.

• “The basic issue at hand is that 2U holds nearly $1 billion of debt with a significant portion ($380 million minimum) that must be paid off in early 2025, and the company does not have the cash or ability to generate profits to be able to cover the debt maturity.”

• “2U had roughly $41 million in cash & equivalents as of September 30th, and it generated roughly $32 million in cash (adjusted unlevered free cash flow) in the past 12 months – that level of operations is not going to work.”

• “2U’s ‘portfolio management’ efforts to ‘transition out of certain degree programs’ are also intended to generate short-term cash, mostly to deal with the debt problem. But the combination of cash and likely cash flow (augmented by portfolio management) is in the neighborhood of $150 million, not nearly enough to handle the debt obligations. This means that the only way 2U survives is if it can renegotiate or refinance the debt.”