Edison Schools receive $40 million in loans

Edison Schools, Inc., the nation's largest commercial manager of public schools, announced on Tuesday that it had reached a settlement to borrow $40 million to finance its takeover of 20 struggling public schools in Philadelphia.

The deal -- which will offer a solution to the current financial crisis that Edison faces -- comes at the price of interest rates that are expected to reach the low teens.

Nevertheless, it will allow Edison to take its most ambitious step yet in the expansion into 20 Philadelphia schools, not to mention give the company an opportunity to rise out of the rocky history that overshadows the private management of public schools.

"This fulfills our promise to Philadelphia," Edison founder H. Christopher Whittle said on Tuesday. "But mostly, it removes what was a very significant uncertainty for the company and our customers."

Edison will receive $30 million in loans from Chelsey Capital, a New York investment fund started by venture capitalist Stuart Feldman.

William Wachtel, Chelsey's general counsel, approached Edison to offer this funding. The offer was made with the intention of facilitating Edison's economic turnaround and helping the nation's public schools.

Chelsey is helping finance Edison "with the firm belief that it will bear two dividends -- one, in terms of an economic return; two, helping to see the public schools in America get some very-much-needed help," Wachtel said.

The remaining $10 million will come from Merrill Lynch, Edison's longtime investment adviser. Merrill Lynch has already extended a $35 million credit line to Edison.

In spite of the heavy interest rates that overshadow these loans, the news of Edison's financial enrichment has been met with mixed reactions by many different groups in Philadelphia, including the School Reform Commission.

"With the $40 million, they now appear to have the ability to operate 20 schools in Philly next year," Penn Vice President for Budget and Management and School Reform Commission member Michael Masch said. "But it's not clear that they have the ability to operate schools in Philly or anywhere else long term."

Masch is not the only one who is wary that Edison's recent financial reinforcement will only offer a short-term solution to their plans.

"It's the same as the average citizen who is able to apply for six credit cards," Vice President of the Philadelphia Federation of Teachers Jerry Jordan said.

"Our kids can't afford to have the belt tightened any more than it already has," he added.

Edison -- which currently operates 136 schools in 22 states to educate a total of 75,000 students nationwide -- has previously relied on the sale of fresh shares to finance its rapid expansion.

This financial backing, however, evaporated during the spring due to widespread disappointment among investers when Edison was only allotted 20 schools to revitalize in Philadelphia -- less than half of the number the company had originally expected.

Edison is only one of seven outside entities that was assigned the responsibility of managing 42 of the most struggling schools in Philadelphia by the School Reform Committee in April.

In addition to Edison, Penn and Temple Universities have also been asked to assist with the privatization of these schools.

Regardless, Edison will be running more than twice the number of schools it manages in any other district, and at least four times more than any other entity in Philadelphia.

For now, at least, the loans that Edison has received have offered some encouragement for the 20 schools that will be taken under Edison's wings come September.

And in spite of the fact that Edison's shares closed on Tuesday at $1.60 -- compared to the average $20 a share last January -- this temporary backing has made their future seem a little less bleak.

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