2U: Rapid Prepack Restructures $945M Debt Stack

2U’s 2024 prepackaged chapter 11 in the Southern District of New York is a fast-confirmation restructuring built around a familiar “growth-era leverage meets demand reset” pattern. The company expanded aggressively in online program management and alternative credentials, including the 2021 purchase of edX for about $800 million. 2U later filed chapter 11 on July 25, 2024.

Court filings described a capital structure with near-term maturities and acceleration triggers that created a restructuring deadline. The RSA-backed prepack used a milestone-driven DIP and rights offering to convert unsecured notes into equity. The plan was confirmed in six weeks, though post-effective claim administration and lease disputes continued into December 2024.

Prepackaged Restructuring

The prepackaged plan paired a milestone-driven junior-lien DIP with a rights offering and a debt-to-equity conversion for the unsecured notes, resulting in a go-private outcome and post-effective claims administration.

Business Profile and Distress Drivers

Business model: online program management plus alternative credentials. The First Day Declaration described 2U as an education technology company partnering with nonprofit colleges and universities to build and support online programs, with offerings spanning online degree programs and alternative credentials, including boot camps and executive education. The revenue profile was tied to partner program launches and renewal cycles, with degree-seeking demand and shorter-duration job-transition products responding to different market conditions.

The growth-era acquisition stack: edX, boot camps, and “open courses.” 2U’s acquisitions are an important link between the business narrative and the capital structure. Court filings described acquisitions including GetSmarter (2017), Trilogy Education Services (2019), and edX in late 2021. MIT and Harvard agreed to transfer edX to 2U in 2021 in an $800 million cash transaction.

Several pieces of reporting emphasized a second-order consequence of the structure: the edX sale generated large proceeds for Harvard and MIT and seeded a successor nonprofit venture funded by those proceeds, even as 2U carried the leverage risk associated with the acquisition. Axim Collaborative was funded with roughly $700 million from the edX sale proceeds and framed as a long-term effort to support online education initiatives. 2U carried the leverage from the acquisition while Axim was funded with the sale proceeds.

Distress drivers: demand reset, weaker boot camp economics, and partner uncertainty. The restructuring narrative in both filings and media coverage repeatedly connected 2U’s financial deterioration to a post-pandemic normalization in online learning demand and weaker boot camp demand tied to labor market conditions. The First Day Declaration described demand shifts and noted that demand for certain boot camp offerings declined beginning in 2023 alongside a decline in demand for entry-level tech jobs. The filing-day coverage cited artificial intelligence as a factor affecting boot camp enrollments.

Partner stability is the other half of the story. Filings described partner uncertainty and delays in partner renewals and new program launches, framed as being influenced by uncertainty about 2U’s financial condition. This dynamic is visible in sector reporting about online program managers more broadly. A 53% decline in new OPM partnerships from 2023 to 2024 was one data point cited in that discussion, with early-2024 signing volumes described as the lowest since before COVID-19.

Partnership scrutiny and renegotiation pressure. Reporting focused on scrutiny of OPM economics and contract terms, including revenue share arrangements. The 2U-USC relationship was curtailed amid scrutiny of OPM economics, including a reported 60% share of online tuition in a social work program. Court filings described partner hesitation and renewal delays during this period.

Capital structure at filing: first lien debt plus two unsecured note maturities. Court filings described total funded debt of approximately $944.8 million as of the petition date, consisting primarily of a first lien credit facility and unsecured notes due 2025 and 2030. The filings described revolving loans of $40.0 million principal outstanding and a first lien term loan of $374.3 million principal outstanding. The unsecured notes were described as $380.0 million of 2025 notes and $147.0 million of 2030 notes.

Filings described acceleration triggers that pulled forward first lien maturities depending on how much of the 2025 notes remained outstanding. The first lien revolver obligations were described as accelerating to January 1, 2025 if more than $50 million of the 2025 notes remained outstanding on that date, and the first lien term loan was described as accelerating to January 30, 2025 if more than $40 million of the 2025 notes remained outstanding on that date. Those triggers tied the first lien facility to the note maturity, effectively creating a restructuring deadline before the stated note maturity date.

Liquidity at filing. Filings stated that aggregate bank account balances were approximately $21.4 million as of the petition date.

RSA, DIP Financing, and Rights Offering Mechanics

The RSA and creditor support: a prepack designed to move quickly. The restructuring support agreement covered about 87% of outstanding debt. The transaction reduced debt to approximately $459 million. The plan was confirmed approximately six weeks after filing.

DIP financing: $64 million junior-lien facility with PIK pricing and milestones. The chapter 11 cases were funded by a junior lien DIP facility described in the DIP Motion as up to $64 million. The DIP was structured as a term loan facility with a $60 million first draw available upon entry of an interim order and up to $4 million additional availability upon entry of a final order.

From a terms perspective, the DIP Motion described pricing as Base Rate + 7.50% or Term SOFR + 8.50%, with interest payable in kind, and a default rate defined as 2.00% above the applicable non-default rate. The DIP maturity was described as January 24, 2025. The motion described milestones including an interim order by July 30, 2024, a combined order by September 8, 2024, and an effective date by September 13, 2024. The court later entered a Final DIP Order on September 6, 2024.

The DIP motion described use of DIP proceeds as being subject to an approved budget, with a permitted variance test described as total disbursements not exceeding 120% of the approved budget for each bi-weekly period.

Adequate protection and lien structure: how the DIP interacts with the first lien collateral package. The DIP Motion described adequate protection for prepetition secured parties, including adequate protection liens on DIP collateral (subject to the carve-out) and superpriority claims, as well as payment mechanics tied to interest and professional fees/expenses for certain advisors. Rights offering and implied valuation: $245 million stipulated equity value and a $46.5 million minimum proceeds condition. The Second Amended Plan describes a rights offering that served as the equity "bridge" for the conversion of unsecured notes into ownership, and the terms are unusually clean to summarize because the plan defines key numbers. The plan defined a "Stipulated Equity Value" of $245 million. It described an equity rights offering amount of $46.5 million and tied the plan’s effective date to a minimum proceeds condition: cash proceeds from the rights offering (including backstop funding) not less than $46.5 million.

The same plan terms described a 30% plan discount for rights offering purchases relative to the stipulated equity value and described a $1.5 million cash premium paid to backstop parties for their commitment. The plan also described how backstop purchasers’ economics differed from other participants: backstop new common interests would be issued at the plan discount less the backstop commitment premium.

Management incentive plan: dilution and governance alignment. The plan described a management incentive plan reserving up to 10% of new common interests on a fully diluted basis issued on the effective date.

Plan Structure and Claim Treatment

Plan treatment: first lien reinstatement via amended-and-restated loans; unsecured notes convert into equity plus rights offering participation; equity wiped out. The Second Amended Plan's Article III classification and treatment language gives a concise map of how value moved. The plan described nine classes for classified claims and interests, including First Lien Claims (impaired and voting), Unsecured Notes Claims (impaired and voting), General Unsecured Claims (unimpaired), and Existing Equity Interests (impaired and deemed to reject).

For the two impaired voting creditor classes, the plan described the core exchange mechanics. Holders of first lien claims were to receive their pro rata share of amended-and-restated loans under an amended-and-restated credit facility. Holders of unsecured notes claims were to receive (i) the right to participate in the equity rights offering and (ii) their pro rata share of new common interests, subject to dilution from the MIP and the rights offering. Existing equity interests and subordinated claims were described as canceled, released, and extinguished on the effective date, with no distribution.

This treatment is consistent with the public narrative in post-effective reporting that unsecured notes converted into ownership and existing equity was wiped out. The plan converted approximately $527 million in unsecured notes into ownership interests and positioned noteholders as the primary owners of 2U.

Exit facility and post-emergence debt economics: why “debt cut in half” still includes structured leverage. The headline in public coverage was a large reduction in funded debt and a move to private ownership. Debt was reduced to approximately $459 million. The plan documents also described a post-effective capital structure that included amended-and-restated first lien loans and a second lien "exit facility" referenced in plan supplement materials. The Exit Facility Term Sheet described the exit facility as a second lien facility with pricing and OID structured as paid-in-kind economics rather than a conventional cash-pay term loan.

The post-effective capital structure retained layered secured debt, with the exit facility structured as PIK rather than cash-pay, reducing near-term cash interest obligations.

Post-Effective Governance, Administration, and Case Closure

Governance: creditor-driven board composition and the conversion to a Delaware LLC. Post-effective governance is often where the economic bargain becomes visible. The Plan Supplement described a seven-member board, identifying six directors and leaving one independent director to be identified. Public communications similarly described a board including CEO Paul Lalljie and directors associated with creditor stakeholders and backers.

The reorganized parent’s legal form also changed. A notice filed in the cases stated that the reorganized parent converted to a Delaware limited liability company on the effective date and intended to file an IRS Form 8832 to elect corporate tax classification effective as of the conversion. The conversion was an implemented plan transaction executed on the effective date.

Releases and opt-in mechanics: targeted release elections for deemed-rejecting classes. The Confirmation Order described a notice package and opt-in process focused on holders of Class 8 (existing equity interests) and Class 9 (subordinated claims). The order described a form for holders to opt in to the third-party release and described an online opt-in portal launched during solicitation, with notices and extensions described in the confirmation findings. Those classes were deemed to reject the plan and did not vote on confirmation; the opt-in release election allowed holders to elect into a release without changing the plan's economic treatment of cancellation and no distribution.

Professional advisors. The court entered orders authorizing retention of Latham & Watkins as bankruptcy counsel, Moelis as investment banker, and AlixPartners as financial advisor. The docket also reflects a governance-related retention: Katten Muchin Rosenman LLP was retained as counsel to an independent director of 2U, Inc.

Operating cash flow during the cases. A monthly operating report covering the period ending September 13, 2024 reported a beginning cash balance of $47.5 million, receipts of $64.7 million, disbursements of $73.9 million, and an ending cash balance of $38.3 million. A post-confirmation report for the quarter ending September 30, 2024 reported total cash disbursements of $24.8 million for that quarter.

Case closure. Although the plan was confirmed and became effective in September 2024, the docket reflects continued claim administration and certain disputes. In December 2024, the court entered an order closing certain chapter 11 cases while consolidating outstanding claims and miscellaneous matters into the lead case for continued administration, amending the lead case caption to "2U, Inc., Reorganized Debtor."

Key Timeline

The chapter 11 cases proceeded on a compressed schedule consistent with an RSA-backed prepack.

Frequently Asked Questions

When did 2U file chapter 11, and where was the case filed?

2U filed chapter 11 on July 25, 2024 in the U.S. Bankruptcy Court for the Southern District of New York.

Was 2U’s case a prepackaged chapter 11, and how quickly did it move?

Yes. The case was filed as a prepackaged chapter 11 and moved from petition to confirmation in roughly six weeks, with the court entering the confirmation order on September 9, 2024 and an effective date notice stating that the plan became effective on September 13, 2024.

How much debt did 2U have at filing, and what were the main funded debt instruments?

Court filings described approximately $944.8 million of funded debt at the petition date, consisting primarily of a first lien credit facility and unsecured notes due 2025 and 2030.

Why did 2U file chapter 11?

Filings described a demand reset in online learning and a decline in demand for certain boot camp offerings beginning in 2023, alongside partner renewal uncertainty and refinancing constraints. The filing was also framed around a demand reset and changing online education dynamics, including boot camp demand pressure.

What DIP financing supported 2U during the cases?

The DIP motion described a junior-lien DIP term loan facility of up to $64 million, with a $60 million first draw and up to $4 million second draw, and PIK pricing tied to Base Rate or Term SOFR plus stated margins.

How did the plan treat the unsecured notes and existing equity?

The plan provided that holders of unsecured notes claims would receive rights offering participation rights and a pro rata share of new common interests (subject to dilution from the MIP and the rights offering), while existing equity interests would be canceled with no distribution. Post-effective reporting described 2U becoming a private company.

What were the key terms of the equity rights offering?

The plan described a $46.5 million equity rights offering with a minimum proceeds condition, a 30% plan discount to a $245 million stipulated equity value, and a $1.5 million cash backstop premium.

Who is the claims agent for 2U?

Epiq Corporate Restructuring, LLC served as the court-authorized administrative agent in the chapter 11 cases. The firm supported solicitation and plan administration functions and coordinated case administration services.

Read more ElevenFlo chapter 11 case research on the ElevenFlo blog.