In The Headlines

Is it “Lights Out” for Once Highflying ITT Education Services?

The federal Department of Education imposed strict new rules on one of the nation’s largest for-profit education companies, ITT Educational Services, barring it from enrolling new students who use federal financial aid and ordering it to pay $153 million to the department within 30 days to cover student refunds if its schools close down. The series of devastating restrictions could put the company out of business within weeks. The actions come amid a federal crackdown on for-profit colleges that already has caused Corinthian Colleges to close last year and Brown Mackie College to close all but four locations.

John B. King Jr., the Secretary of Education, said the Department took action to protect both ITT’s students and the taxpayers who are on the hook for losses when students default on their federal aid. “Looking at all of the risk factors, it’s clear that we need increased financial protection and that it simply would not be responsible or in the best interest of students to allow ITT to continue enrolling new students who rely on federal student aid funds,” Mr. King said in a statement.

The action threatens the viability of the beleaguered company, which like most for-profit education entities relies heavily on government financial aid programs for students to fund its operations. As of June 30, according to a regulatory filing, ITT had only $78 million in cash on its balance sheet. ITT operates 137 campuses in 39 states, providing career-oriented programs to 43,000 students at ITT Technical Institute and Daniel Webster College locations. ITT was once a highflying stock, trading above $75 a share in 2012. Recently, its shares have traded at $1.40.

The company has been under increased scrutiny by the Department of Education since 2014, and has been accused by both federal and state regulators of misleading students about the quality of its programs and their employment potential upon graduation. The Consumer Financial Protection Bureau filed a lawsuit against ITT two years ago, accusing the college chain of predatory student lending.

In addition to the enrollment restrictions imposed by the Education Department, ITT is also prohibited from awarding raises to employees, paying bonuses to its executives, or paying special dividends without Department approval. In recent years, ITT has not paid bonuses to its executives. Still, Kevin Modany, its Chief Executive, received total compensation of $1.4 million last year, the company’s proxy statement shows. The Education Department also required ITT to develop “teach-out” plans for current students, allowing them to finish their programs at other colleges if ITT shuts down.

ITT, based in Carmel, IN, must also inform its students that its accreditor, the Accrediting Council for Independent Colleges and Schools, has determined that the institution is not in compliance with its criteria. That determination was made this month. Earlier this year, ITT said it believed its schools were in compliance, but it also acknowledged that if the schools lost the accreditation, they would no longer have access to government loan programs.

Those programs are the lifeblood of ITT and other for-profit education companies. Federal aid accounted for almost 70% of ITT’s $850 million in revenues last year, the Education Department said. Consumer advocates praised the Department’s action against ITT. “We applaud the Department of Education for taking real action to prevent ITT from recruiting more students to take on federal student loan debt to attend an institution that was found by its accreditor not to fully satisfy even minimal standards in critical areas,” Abby Shafroth, a staff attorney for the National Consumer Law Center’s Student Loan Borrower Assistance Project, said in a statement. Students currently enrolled in an ITT school can continue their studies, the Education Department said. But students who decide to pause in their studies will probably be able to discharge their federal loans if ITT closes down before they finish their programs.

Citations

1. http://nyti.ms/2bmOfOb – New York Times
2. http://trib.in/2bmWT56 – Chicago Tribune

New Partnerships Move the Future of Autonomous Cars Closer

Auto parts and electronics company Delphi Automotive is joining with Israeli software maker Mobileye to develop the building blocks for a fully autonomous car in about two years. Their recently announced their partnership is another in a flurry of auto industry and tech tie-ups as companies race for self-driving supremacy.

Delphi and Mobileye plan to build a complete autonomous driving platform that they will sell to automakers worldwide. They promise to demonstrate the technology at the January 2017 Consumer Electronics Show and have it ready for production in 2019. Delphi already has taken an autonomous Audi on a cross-country drive, while Mobileye makes software that processes data from cameras and other sensors.

Delphi, a former General Motors spinoff, and Mobileye, of Jerusalem, now supply auto makers with the sensors and software that are the building blocks of autonomous-vehicle development programs. Shares of both have struggled recently as car sales plateau and customers put the pieces in place to eventually develop their own gear.

Delphi Chief Executive Kevin Clark said in an interview the two aim to shoulder much of the development burden for auto makers that have grown comfortable with outsourcing critical technology development. “We’re able to pool the investment as well as the technology and execution risk in one place so it doesn’t have to be duplicated by multiple auto makers over and over again,” Mr. Clark said.

The companies did not give many financial details, but said they would share development costs for a total combined investment of a few hundred million dollars. Mobileye will provide its next generation chip that processes signals from multiple sensors, as well as software used for real-time mapping. Delphi will contribute automated driving software algorithms and controls for camera, radar, and laser sensors. Mobileye Chairman and Chief Technology Officer Amnon Shashua said the pair hope to overcome any timing hurdles by offering “a new level of driving intelligence,” mimicking a driver’s decision making behind the wheel in complex situations. “If we don’t want to clog a city with robotic systems that get stuck in busy traffic, you must endow these systems with intelligence.”

The partnership is the latest as old-line auto companies combine their strengths with technology companies as they try to stay competitive on autonomous cars. Last week ride-hailing company Uber announced a partnership with Volvo and acquired a San Francisco startup called Otto to work on autonomous vehicles. Uber said it plans to test autonomous cars by carrying passengers in a few weeks in Pittsburgh, with human backup drivers. In January of this year General Motors invested $500 million in Lyft, Uber’s prime competitor, and it bought Cruise Automation, a West Coast autonomous software company.

In addition, Google has partnered with Fiat Chrysler to work on autonomous minivans, and Volkswagen has invested $300 million in Uber competitor Gett. BMW, Intel, and Mobileye also have a partnership, and Ford recently invested $150 million in laser sensor maker Velodyne. It also acquired Israel-based SAIPS for its expertise in artificial intelligence and computer vision, and invested in Berkeley, California-based Civil Maps.

Citations

1. http://bit.ly/2bGLecj – US News & World Report
2. http://on.wsj.com/2byZaH8 – Wall Street Journal

The Good News Is . . .

• New U.S. single-family home sales unexpectedly rose in July, reaching their highest level in nearly nine years as demand increased broadly, brightening the housing market outlook. The Commerce Department said new home sales surged 12.4% to a seasonally adjusted annual rate of 654,000 units last month, the highest level since October 2007. Economists had forecast single-family home sales, which account for about 9.6% of overall home sales, slipping to a rate of 580,000 units last month.

• Best Buy Co., Inc., a leading retailer products and services, reported earnings of $0.57 per share, an increase of 16.3% over year-earlier earnings of $0.49 per share. The firm’s earnings topped the consensus estimate of analysts by $0.14. The company reported revenues of $8.5 billion, an increase of 1.0%. Management attributed the results to growth in its online sales and improved operating margins.

• Medivation, which makes the big-selling drug Xtandi to treat prostate cancer, has been acquired by drug maker, Pfizer. Pfizer will pay $14 billion to acquire Medivation, representing $81.50 a share in cash. Pfizer, like virtually all pharmaceutical companies, is making a big push into oncology. One reason is that discoveries in genetics and immunology are allowing for the development of new types of cancer drugs. But another big reason is that cancer drugs can sell for well over $100,000 a year and so far have been more resistant to cost-cutting efforts by insurers than drugs for some other diseases. The acquisition of Medivation will give it access to the prostate cancer drug Xtandi. The pill has been used to treat 64,000 men in the United States alone, and it generated $2.2 billion in global sales in the last four quarters. Analysts see sales eventually reaching $4 billion or more annually.

Citations

1. http://reut.rs/2biqZk6 – Reuters
2. http://cnb.cx/1gct3xa – CNBC
3. http://bit.ly/2c22Hjg – Best Buy Co., Inc..
4. http://nyti.ms/2bpT4G1 – NY Times Dealbook

Planning Tips

Guide to Social Impact Investing

Social impact investing—also known as values-based or socially responsible investing—is a growing movement among those seeking to align financial goals with social and environmental concerns. The growing social impact investment market provides capital to address the world’s most pressing challenges in sectors such as sustainable agriculture, clean technology, microfinance, and affordable and accessible basic services including housing, healthcare, and education. Below are some guidelines to these investments. Be sure to consult with your financial advisor to determine if social impact investing is appropriate for your situation.

What is social impact investing? – Social impact investing refers to investments made into companies, organizations, and funds with the intention to generate a measurable, beneficial social or environmental impact alongside a financial return. Impact investments can be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending upon the circumstances. Social impact investing is used to positively impact a variety of sectors. The primary goal of investors who select impact instruments should be the generation of measurable social change, with financial returns serving as an ancillary goal.

Know your goals and do your research – Start by reading up on social impact investing, talk with your financial advisor and see how it can fit into your financial plans. There are many good resources online, for example the site www.investwithvalues.com. It is not necessary to accept lower returns as an impact investor, though sometimes people choose to do so. It all comes down to what your personal goals are, both for your financial planning and for your social, philanthropic efforts. If you do choose to make a concessionary return (below market rate), just know that there are higher return options out there. It is perfectly acceptable to make that choice. Just do it consciously.

Determine the right type of impact investment for you – Impact investing covers a wide range of options, from microloans and crowdfunding to mutual funds and venture capital. Some investments, like green bonds, help corporations raise capital to fund sustainability projects and yield exactly the same as other similar quality bonds. Other investments, like community-based lending, might offer lower financial returns but higher social returns. Beauty is in the eye of the investor.

Public markets – Investing in the stocks and bonds of publicly traded companies is one of the easiest ways for the retail investor to get started in social impact investing. Environmental Social Governance (ESG) investing, which uses positive screens such as sustainable supply chains, progressive employment practices, and business ethics is a tool for putting funds into socially responsible companies. Some investors contend and research indicates that public companies creating ESG value may often outperform their non-ESG cohorts. Actively managed mutual and index funds with positive ESG screens include offerings from Calvert Investments, Pax World, Parnassus, Domini, TIAA-CREF, MSCI, Vanguard, and others.

Private markets – Debt and equity investing in privately held impact ventures has traditionally been restricted to accredited investors and institutions. However, there are a handful of high-impact private debt offerings with low minimum investment requirements available to retail investors. Calvert Foundation’s Community Investment Note invests in impact enterprises in the US and the developing world across a range of impact themes, from microfinance to education, from Fair Trade to women’s empowerment. These one-to-ten-year notes have interest rates ranging from 0.5 – 3% and may be purchased by retail investors online through Vested.org for as low as $20 and through a broker at a minimum of $1,000. RSF Social Finance’s Social Investment Fund offers exposure to a range of for-profit and nonprofit impact ventures in food, agriculture, education, environment, and the arts for as little as $1,000. Retail investors may also engage in zero-interest peer-to- peer lending through Kiva.org. Lastly, ImpactAssets, has developed and will be offering products focused on microfinance and sustainable agriculture designed to democratize access to impact investing.

Citations

1. http://bit.ly/2bOwfih – Forbes
2. http://bit.ly/2bPxoYo – Investopedia
3. http://bit.ly/1VGOgRK – Global Impact Investing Network
4. http://bit.ly/2bpN0R8 – BostonCollege.edu
5. http://bit.ly/1DBo1Ca – Conscious Company Magazine