💥New Chapter 11 Bankruptcy Filing - Higher Ground Education, Inc.💥
Montessori school operator files prepackaged cases following a wave of foreclosures
Back on June 17, 2025, Houston-based Higher Ground Education Inc. and 34 affiliates (collectively, the “debtors”) filed chapter 11 bankruptcy cases in the Northern District of Texas (Judge Larson) — and, no, Tom Califano and Sidley Austin LLP are not in the mix. Rather, it’s the fine folks at Foley & Lardner LLP (Holland O’Neil, Timothy Mohan, Nora McGuffey, Quynh-Nhu Truong) serving as debtors’ counsel and — G-d bless! — these absolute legends have even provided us with a docket-filed presentation to get the lay of the land! Yay, pretty graphics!!
The debtors were formed in ‘16 by a team of veteran educators with the mission of achieving Montessori education “at scale.” If you’ve never heard of the Montessori educational approach, it was developed in the early 20th century by an Italian physician, Maria Montessori, and stresses a “child-centered educational approach” — whatever that means. LOL, JK, we know a good chunk of you are alpha-dog New Yorkers and Angelinos who very much know what “child-centered educational approach” means. Means to your wallet, LOL.
Regardless of your thoughts on teaching philosophy, the debtors did grow rapidly and by ‘24 were the largest owner and operator of Montessori schools in the world with 150 schools, and even expanded internationally to China, Canada, and Europe.* Check out this rapid expansion 👇:
Unfortunately, despite (or, rather, because of) the debtors’ rapid growth, the business has NEVER generated a single cent of positive cash flow from operations (see first chart 👇) — a reality driven, in large part, by the debtors’ extensive and expensive lease footprint (see second chart 👇):
Naturally then, it would make sense to attempt a restructuring of these lease agreements. In August ‘24, the debtors kickstarted that process; they decided to pause all rent payments and brought on Keen-Summit Capital Partners LLC (“Keen Summit”) to help with an overall lease restructuring plan. The debtors ended up executing ~120 lease amendments, which represented the majority of the debtors’ leases, and, for the remaining leases, worked with landlords to transition operations to a new tenant.**
Unfortunately …
Actually, it wasn’t even close to being enough. Here’s the debtors’ interim president, Jonathan McCarthy, in his first day declaration:
“While the Lease Restructuring provided short-term benefits for the Debtors’ cash flows, it ultimately was not sufficient to offset ongoing losses. Even with the cash flow savings, the Debtors were unable to achieve positive cash flow from operations.”
Really makes you wonder where all of that high priced tuition goes, doesn’t it?
Anyway, even so, certain members of the debtors’ Board still wanted to continue pursuing growth:
“Beginning in 2024 and continuing in 2025 the Debtors experienced significant changes with respect to their Board and management resulting from general disagreements over strategy, growth, capital raising, and leadership. While certain Board directors wanted the Debtors to transition to a mature, stable, and profitable operators, other directors believed the best path forward was continuing the ‘hyper-growth’ strategy that required significant capital to fund expansion.”
LOL, this is what happens when your kids’ “child-centered educational approach” is powered by the vest-wearing venture bros (and their broheims at the growth equity shops) — including here, a firm called Learn Capital, which last held 49% of the debtors’ equity and had two board seats in early ‘25.
And due to the continual cash burn, the debtors had to repeatedly tap funding in order to keep operations afloat. Since ‘20, the debtors have raised over $335mm in equity and debt funding, ending up with a debt stack that at one point looked like this …
… and, now, as of the petition date and after a number of foreclosures (discussed below), looks like this:
Whoa boy. What happened??
Well, finally, in early ‘24 the debtors hit a financing brick wall. Both Rothschild & Co US Inc. and Barclays Capital Inc. ($BARC) were unable to secure debt or equity financing and then an early ‘25 attempt by SC&H Capital to pursue a sale and potential debtor-in-possession financing also failed. There were a few investors that did approach the debtors directly following the news of several school closures, but their proposals were at “fire sale prices” and were, according to the debtors, not actionable.
So sh*t started hitting the fan.
By March ‘25, notices of default started rolling in and three of the debtors’ lenders foreclosed on the vast majority of the debtors’ assets.
WTI Fund X, Inc., managed by Western Tech Investment (“WTI”), and lender under the WTI loan agreements, sent the first notice. At the time, WTI was owed $27.8mm and moved to foreclose on its collateral. On March 22, 2025, WTI executed a sale agreement with Learn Capital affiliate, Guidepost Global Education, Inc. (“GGE”), for the foreclosed assets in an amount of $23.1mm. As of the petition date, WTI maintains a $4.7mm secured claim against the debtors.
Due to the WTI default, the debtors cross-defaulted under the $3.8mm Learn Fund XXXVII promissory note. The promissory note was secured by a first lien security interest in certain of the debtors schools and, similar to WTI, Learn Capital moved to foreclose and sell its collateral. On April 23, 2025, Learn Capital sold the underlying assets to Cosmic Education Americas Limited (“CEA”) and, after accounting for the proceeds, maintains an unsecured claim of $410k as of the petition date.
Yu Capital, and its affiliates, started sending their default notices in March ‘25 as well and ultimately sold most of their respective foreclosed collateral via public auctions. As of the petition date, the debtors still owed ~$6.3mm under the various Yu Capital loans, all of which are now considered unsecured obligations.
All of which begs an obvious question: why didn’t the debtors just file for bankruptcy earlier in the face of all of this chaos and get the benefit of the Bankruptcy Code’s automatic stay? For that answer, we turn to Foley & Lardner LLP’s Timothy Mohan, on behalf of the debtors, during the first day hearing:
“And the debtors did consider filing a TRO, filing a bankruptcy case to prevent the foreclosures, but they knew that if they did that, a public fight would lead to irreparable harm to the brand. We all know that the most important piece for schools and families is trust and the ability for families to rely on the ongoing operations of those schools. If there's uncertainty, parents will begin looking for alternatives for their students, for their kids, and they will ultimately remove their kids from those schools. So a public fight would have led to a run out of the schools.”
We’ve contemplated “bank runs” before but never “kid runs”! 😬
Following the series of foreclosures, the debtors desperately needed liquidity to meet their working capital needs. This resulted in the debtors selling a few schools to CEA in May ‘25 for $1.2mm and issuing $2.2mm in a purchase option note to Learn Capital in April ‘25. CEA ended up acquiring the purchase option note from Learn Capital on May 8, 2025 and exercised the $2.3mm purchase option.
When all was said and done and the lenders were finished doing their thing, the debtors were left with just seven schools — 🔥repeat JUST SEVEN SCHOOLS 🔥 — the future of which will be dealt with in these cases.
But good news! There’s a restructuring support agreement (the “RSA”) with the majority of stakeholders including 2HR Learning, Inc. (“2HR”)(a prepetition lender who’s acting as plan sponsor), Learn Capital, Ramandeep Girn (cofounder and lender), Yu Capital, and others.
To get to the RSA and bridge to the filing of these cases, YYYYY, LLC (“Five Y”), an affiliate of 2HR, and GGE each funded a bridge loan a day prior to the petition date on June 16, 2025. Five Y contributed $500k in the form of a senior prepetition bridge loan and GGE contributed $1.5mm in the form of a prepetition junior bridge loan. The debtors are proposing to roll-up both those bridge loans as part of an $8mm headline DIP comprised of (i) Five Y’s senior DIP facility totaling $5.5mm ($2mm interim) and (ii) GGE’s junior DIP facility totaling $2.5mm ($800k interim). Both DIP facilities carry a 9% interest rate without any exit/commitment fees.
As for the RSA, it’s already been baked into an on-file disclosure statement and plan. In brief, 2HR will be the ultimate owner of the reorganized debtors (aka the seven remaining schools).*** And importantly, in an attempt to provide some recoveries to unsecured creditors (so long as they accept the plan — it’s a death trap!), the RSA parties are waiving their rights to plan distributions with the exception of Mr. Girn, who’s receiving $500k on account of his CN-3 notes claim. GGE will also be “returning” to the reorganized debtors certain curriculum assets and IP assets that were originally acquired by GGE through the WTI foreclosure. Proposed releases abound, 👍🤡!
Under the DIP milestones, the debtors have 105 days from the petition date to receive disclosure statement and plan approval with a plan effective date no later than September 30, 2025. Parties will convene for a second day hearing on July 21 at 9:30am CT. Between now and then, we reckon an official committee of unsecured creditors will get in on this action and start turning over some tables.
The debtors are represented by Foley & Lardner LLP (Holland O’Neil, Timothy Mohan, Nora McGuffey, Quynh-Nhu Truong) as legal counsel, and SierraConstellation Partners, LLC (Sean Corwen) as financial advisor. YYYYY, LLC and 2HR Learning, Inc. are represented by Cozen O’Connor (Trevor Hoffman, David Kirchblum, Frederick Schmidt) as legal counsel. Guidepost Global Education, Inc. (Learn Capital) is represented by Kane Russell Coleman Logan PC (Jason Binford) as legal counsel. WTI is represented by Fox Rothschild LLP (Trey Monsour, Jeffrey Klugman) as legal counsel. Ramandeep Girn and Rebecca Girn are represented by Dentons US LLP (Clay Taylor, John Beck) as legal counsel. Yu Capital is represented by Nixon Peabody LLP (Christopher Fong) as legal counsel. Cosmic Education Americas Limited is represented by White & Case LLP (Samuel Kava, Gabriela Delgado) as legal counsel.
*International entities are not a part of these cases and are non-debtors.
**For many of these lease amendments, rent deferrals are in place until September ‘25.
***There are some wonky mechanics here where Five Y could exercise a subscription option to take some equity away from 2HR but they’re affiliates anyway so whatevs. This won’t affect the treatment of others as there’s a gifting mechanism from WTI to CN Noteholders and general unsecured creditors pursuant to some formula we’re too lazy to look at, so long as both of those classes, Classes 3 and 6, respectively, vote to accept the plan.
For its part, GGE is receiving certain of the debtors’ EB-5 entities. These EB-5 entities are the result of $50mm in equity funding received from EB-5 investors since ‘17. The idea is that these EB-5 entities might retain value for the investors who might still have a vested interest in these entities to get their green cards.
Company Professionals:
Legal: Foley & Lardner LLP (Holland O’Neil, Timothy Mohan, Nora McGuffey, Quynh-Nhu Truong)
Independent Director: Marc Kirshbaum
Financial Advisor: SierraConstellation Partners, LLC (Sean Corwen)
Claims Agent: Verita (Click here for free docket access)
Other Parties in Interest:
Senior DIP Lender and Plan Sponsor: YYYYY, LLC and 2HR Learning, Inc.
Legal: Cozen O’Connor (Trevor Hoffman, David Kirchblum, Frederick Schmidt)
Junior DIP Lender: Guidepost Global Education, Inc. (Learn Capital)
Legal: Kane Russell Coleman Logan PC (Jason Binford)
WTI
Legal: Fox Rothschild LLP (Trey Monsour, Jeffrey Klugman)
Ramandeep Girn and Rebecca Girn
Legal: Dentons US LLP (Clay Taylor, John Beck)
Yu Capital
Legal: Nixon Peabody LLP (Christopher Fong)
Cosmic Education Americas Limited
Legal: White & Case LLP (Samuel Kava, Gabriela Delgado)