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Meeting of the Board of Regents | June 2008

Sunday, June 1, 2008 - 11:00pm

sed seal                                                                                                 

 

 

THE STATE EDUCATION DEPARTMENT / THE UNIVERSITY OF THE STATE OF NEW YORK / ALBANY, NY 12234

 

TO:

FROM:

Frank Muñoz

 

SUBJECT:

Swedish Institute, Inc.: Temporary Authorization of Degree Powers Upon a Change of Ownership

 

DATE:

June 4, 2008

STRATEGIC GOAL:

Goals 2 and 4

AUTHORIZATION(S):

 

 


Summary

 

Issue for Decision

 

Should the Board of Regents authorize Swedish Institute, Inc. to award degrees temporarily under a new ownership arrangement?

 

Reason for Consideration

             

              Required by State Regulation.

             

Proposed Handling

 

This question will come before the Higher Education Committee at its June 2008 meeting, where it will be voted on and action taken.  It then will come before the full Board at its June 2008 meeting for final action.

 

Procedural History

 

not available at this timeThe owners of Swedish Institute, Inc. (Swedish Institute) propose to sell the corporation to Quad Partners II LP (60% ownership) and Quad Partners III-A LP (40% ownership), Delaware limited partnerships under the auspices of Quad Partners, LLC (Quad Partners), which was established in 1999 to acquire, own, and operate career-oriented educational institutions. The transfer of ownership is to occur in two phases, according to a purchase agreement dated March 13, 2008.  The first phase occurred on March 13, 2008, and included an agreement for Quad Partners to purchase a 49% stake in Swedish Institute.  The second, and final, phase of the agreement, which will transfer the remainder of Swedish Institute’s shares to Quad Partners, is expected to take place after the Board of Regents authorizes the Institute to award degrees temporarily under a new ownership arrangement.

 

On April 7, 2008, Quad Partners submitted a proposal for a temporary transfer of degree-conferring authority. Section 3.58 of the Rules of the Board of Regents provides that the Regents “may consent to a temporary transfer of degree-conferring authority after the change of ownership or control of the institution already has been made, upon an adequate showing of good cause by the institution.”  In this case, the good cause is the inability of the current owner to continue operations of the Institute due to a battle with a terminal illness; the transfer is necessary in order to ensure that the Institute continues operations and students are able to continue their current programs of study.

 

Background Information

 

Swedish Institute, Inc.  Founded in 1916, Swedish Institute, Inc. is the oldest school of massage therapy in the United States.  It was first licensed by the Department in the 1930s.  Swedish is a for-profit institution that was first incorporated under Business Corporation Law in 1954. In August 1999, the Institute received approval to award the Associate in Occupational Studies (A.O.S.) degree to students completing the massage therapy program.  In November 2003, the Board of Regents authorized the Institute to confer the Bachelor of Professional Studies (B.P.S.) and Master of Science (M.S.) degrees.

 

Today, Swedish Institute offers a licensure-qualifying, A.O.S. degree program in Massage Therapy; a licensure qualifying, M.S. degree program in Acupuncture; and a licensure qualifying program in Acupuncture leading to the B.P.S./M.S. degrees.  In the fall of 2007, the College enrolled approximately 600 students. Swedish Institute is institutionally accredited by the Accrediting Commission of Career Schools and Colleges of Technology (ACCSCT). The Acupuncture program is accredited by the Accreditation Commission for Acupuncture and Oriental Medicine (ACAOM). The Massage Therapy and Acupuncture programs are registered as licensure-qualifying by the Department.

 

Swedish Institute is considered one of the premier massage therapy schools in New York State, and recent licensing exam results show that the college produced the highest number of test takers (169) and one of the highest passing rates (96%).  The Institute’s graduates consistently excel on the New York State Massage Therapy licensing exam.  Although the college continues to offer quality educational programs, the longstanding owner and majority stockholder, Paula Eckardt, is now unable to dedicate the time and attention necessary to operate the college, due to a life-threatening illness.  On March 6, 2008, Ms. Eckardt approached Quad Partners seeking funds necessary to repay debt and expenses coming due; and on March 13, 2008, an agreement was reached which would allow Quad Partners to acquire the college, and to provide additional capital and operating assistance needed to ensure the Institute’s ongoing success.

 

Swedish Institute’s New Owner.  Swedish Institute’s proposed purchaser is Quad Partners II LP and Quad Partners III-A LP (Quad Partners). Quad Partners II LP is a Delaware limited partnership controlled by its general partner, Quad Advisors II LP. Quad Partners III-A LP is a Delaware limited partnership controlled by its general partner, Quad Advisors III-A LP. The members of both Quad Advisors II LP and Quad Advisors III-A LP are Lincoln Frank, Andrew Kaplan, Thomas Kean, Daniel Neuwirth, Stephen Spahn and Russell Dritz. The limited partners of both Quad Partners II LP and Quad Partners III-A LP are passive institutional and individual investors. (See Attachment 1 for the ownership tree.)

 

Quad Partners owns a majority interest in BeckfieldCollege – a college in Kentucky, offering bachelor’s, associate, and certificate programs in nursing, paralegal, business and criminal justice. Quad Partners also owns a majority interest in two institutions in New York State licensed by the Department’s Bureau of Proprietary School Supervision:Culinary Academy of Long Island– a non-degree school in Syosset offering commercial cooking, baking and hotel management programs; andCulinary Academy of New York(d/b/a Career Academy of New York) – a non-degree school in Manhattan offering commercial cooking, baking, hotel management and medical assisting programs. 

 

Quad Partners holds non-control, minority interests in three non-degree institutions:  Dorsey Business Schools– a non-degree school with four campuses in Michigan offering programs in allied health and business;Blue Cliff College – a career school with eight campuses in Louisiana, Mississippi and Arkansas offering diploma programs in allied health and massage therapy; and B&H Education – a non-degree school with 22 campuses in California offering training for the salon/spa industry, including cosmetology, hair design, esthetics and manicuring.

 

Quad Partners principal, Lincoln Frank, has indicated that Quad Partners has never sold an acquired school, since its establishment in 1999.

 

Regulatory Provisions.  The purchase of a proprietary college does not automatically include a transfer of degree-conferring powers.  Pursuant to §224 of the Education Law, the consent of the Board of Regents is required before a proprietary college, operating under a new owner, can award degrees. Section 3.58 of the Regents Rules includes the standards, requirements, and procedures the Department shall use in determining whether to recommend to the Board that it grant such authority to the new owner of a proprietary college.  Following promulgation of §3.58, the Department developed Interim Guidelines for the Grant of Authority to Confer Degrees Upon the Change of Ownership of a Proprietary College in consultation with the field. Generally, §3.58 requires that the Regents consent to the transfer of degree-conferring authority prior to a sale. 

 

However, §3.58 provides that the Regents “may consent to a temporary transfer of degree-conferring authority after the change of ownership or control of the institution already has been made, upon an adequate showing of good cause by the institution.”  In this case, the good cause is the inability of the former owner to continue operations of the Institute due to a battle with a terminal illness, which resulted in requesting Quad Partners for financial resources and transfer of ownership. In response to this request, Quad Partners provided capital to repay debt and expenses coming due, and reached an agreement to acquire the Institute and provide additional capital and operating assistance needed to ensure its ongoing success and adequately provide for the students currently at Swedish Institute.  Quad Partners has drawn up the contracts and subsequent closing terms for transfer of ownership, and has submitted an application for authority to award degrees, including the information required for a temporary grant of degree powers. Department staff also conducted a site visit to Swedish Institute.

 

A report of the Department’s findings, below, provides information about the new owner and its ability to meet the requirements of §3.58.

 

Recommendation

 

Because the Department has found that it would be in the best interest of Swedish Institute’s students to do so, it is recommended that the Board of Regents authorize Swedish Institute, Inc. under its new owner, Quad Partners, to award Associate in Occupational Studies (A.O.S.), Bachelor of Professional Studies (B.P.S), and Master of Science (M.S.) degrees on duly qualified students successfully completing registered programs for a period beginning upon execution of the final phase of the purchase agreement and ending on December 24, 2008.

 

Timetable for Implementation

 

If the Board of Regents authorizes Swedish Institute to award degrees under its new owner, the authorization will take place immediately upon execution of the final phase of the purchase agreement.  During the six-month temporary transfer period, the Department will complete its evaluation of the new owner’s application and its operation of the Institute. If the Department finds that Swedish Institute is “in compliance with the Education Law, program registration standards set forth in Part 52 . . . , other Rules of the Board of Regents and Regulations of the Commissioner of Education, other State statutes and regulations, and federal statutes and regulations, relevant to the operation of degree-granting institutions,” it will prepare a recommendation to the Board to grant that authority without term and with any condition that the Department may find necessary. Alternatively, if the Department finds the Institute to be in only partial compliance, the Board may extend authorization for a further period not to exceed 180 days. If the Department finds the Institute significantly out of compliance, the authorization may be allowed to expire or, if necessary, revoked before the expiration date.


Findings

 

The findings below relate to (I.) general and financial information about Quad Partners II LP and Quad Partners III-A LP, the purchaser of Swedish Institute Inc., and (II.) its Plan for Operation of the College.  A description of Swedish Institute’s present status is Appendix A.

 

I.            General and Financial Information: Quad Partners II LP and Quad Partners III-A LP

 

Quad Partners II LP and Quad Partners III-A LP are Delaware limited partnerships controlled by its general partners, Quad Advisors II LP and Quad Advisors III LP, respectively. The Quad partnerships are managed by Quad Partners, LLC, which was formed in 1999 to acquire, own, and operate career-oriented educational institutions.  The findings about it are organized under the five standards set forth in §3.58(e)(6)(ii) of Regents Rules.

 


Standard (a) in §3.58 (e)(6)(ii)

: Evidence confirming the prospective owner’s capacity to operate the institution in compliance with the Education Law, program registration standards set forth in Part 52 of this Title, other Rules of the Board of Regents and Regulations of the Commissioner of Education, other State statutes and regulations, and Federal statutes and regulations, relevant to the operation of degree-granting institutions.

 

Quad Partners is an organization founded in 1999 exclusively to acquire, own and operate schools, colleges and related education companies.  Currently, Quad owns interests in six postsecondary school groups with 37 campuses across the country.  Quad’s team consists of a group of educators, school administrators and investors, including the former governor of New Jersey and president of Drew University. 

 

Quad Partners makes acquisitions through two Delaware limited partnerships, Quad Partners II LP and Quad Partners III-A LP. These two limited partnerships are controlled by their general partners, Quad Advisors II LP and Quad Advisors III LP.  The members of the general partners are Lincoln Frank, Andrew Kaplan, Thomas Kean, Daniel Neuwirth, Stephen Spahn and Russell Dritz.  The limited partners of the two limited partnerships are passive institutional and individual investors.  (See Attachment 1 for a graphic representation of Quad Partners and prospective ownership of Swedish Institute, Inc.)

 

Managing partner Lincoln Frank was the Chief Operating Officer of J.P. Morgan Capital Corporation and a board member/principal of its private equity fund, an investment banker with Goldman, Sachs & Co. and a lawyer with Skadden Arps. He holds an LL.M. from Cambridge University, a J.D. from the University of Pennsylvania Law School and a B.A. from Wesleyan University.

 

General partner Thomas Kean was the President of Drew University in Madison, New Jersey from 1990 to 2005. Previously, he was Governor of New Jersey from 1982-1990 and noted for numerous education reforms. He chaired the Education Commission of the States and National Governors' Association's Task Force on Teaching. He also was the Chairman of the 9/11 Commission. He holds an M.A. from Columbia University Teachers College and a B.A. from Princeton University.

 

General partner Andrew Kaplan was a senior executive at Kaplan, Inc. Before joining Kaplan, he served as Director of the Educational Technology Group at Scholastic. He holds an M.B.A. from New York University’s Stern Business School and a B.A. in Computer Science from Brandeis University.

 

General partner Daniel Neuwirth previously worked at Donaldson, Lufkin & Jenrette in the Merchant and Investment Banking groups with a focus on education companies. Earlier, he spent three years at Goldman, Sachs & Co. in the Principal Investing and Investment Banking areas. He holds an M.B.A. from the Amos Tuck School at Dartmouth and a B.A. from Williams College.   

 

General partner Steven Spahn has been the Headmaster and owner of The Dwight School, a K-12 school in New York City, since 1967. He is the founder of The International School of London, an owner of John Catt Educational Ltd., a U.K. Publisher, and previous owner of several career schools. He completed coursework for a Ph.D. at Columbia University, attended Oxford University and holds a B.A. from Dartmouth College.

 

Principal Russell Dritz previously worked as a media and telecommunications investment banker at Credit Suisse First Boston with a focus on the education, entertainment and publishing sectors. He holds a B.S. in Economics from The Wharton School at the University of Pennsylvania.

 

Mr. Frank has indicated that Quad Partners intends to maintain ownership of The Swedish Institute on a long-term basis.  In an April 2008 letter to the Department, Frank states that “Quad Partners is a long-term owner and operator of colleges.  We have never sold a college group.” He further notes that the General Partners associated with the organization have been involved since its founding in 1999, and that they “are passionate about the value of education to our community and protecting our reputation as quality school owners.”  He points to the continuing commitment to and stability of their present educational holdings.

 

 


Standard (b) in §3.58(e)(6)(ii)

: Evidence confirming that the prospective owner has sufficient financial resources to ensure satisfactory conduct of degree programs and achievement of the institution’s stated educational goals.

 

              Quad Partners was established for the sole purpose of acquiring and supporting educational institutions, and has established a track record of stable and steady financial commitments in support of its degree and non-degree granting institutions. The purchaser is an investment firm with current “Committed Capital” of $72.8 million. They have an additional $119.4 million available for future investments and expenses.

 


Standard (c) in §3.58(e)(6)(ii)

: Evidence of the prospective owner’s experience operating an educational institution or other business or enterprise in an effective manner which demonstrates the prospective owner’s capacity to operate a degree-granting institution.

 

Quad Partners owns interests in a mix of degree and non-degree institutions with a focus on careers. BeckfieldCollege is an occupational college in Kentucky offering bachelor’s, associate, and certificate programs in nursing, paralegal, business and criminal justiceCulinaryAcademy of Long Island is alicensed non-degree school in Syosset offering commercial cooking, baking and hotel management programs. CulinaryAcademy of New York is a licensed non-degree school in Manhattan offering commercial cooking, baking, hotel management and medical assisting programs. Dorsey Business Schools is a non-degree school with four campuses in Michigan offering programs in allied health and business.  Blue Cliff College is a career school with eight campuses in Louisiana, Mississippi and Arkansas offering diploma programs in allied health and massage therapy. B&H Education is a non-degree school with 22 campuses in California offering training for the salon/spa industry, including cosmetology, hair design, esthetics and manicuring.

 

Quad Partners has submitted the latest accreditation and licensing information for its educational holdings. 

 


Standard (d) in §3.58(e)(6)(ii)

: Evidence that postsecondary education institutions that the prospective owner operates in New York State or elsewhere, if any, are in compliance with Federal and state statutes and regulations and accreditation requirements relevant to the operation of such institutions.

 

The Department’s Bureau of Proprietary School Supervision reports that there are no problems with either the Culinary Academy of New York or the Culinary Academy of Long Island. Inquiries made to other states resulted in no negative feedback regarding Quad Partners. The Department was informed that representatives of Quad Partners were cooperative and wanted to comply with state standards. 

 

Beckfield College is currently accredited and licensed by the Accrediting Commission for Independent Colleges and Schools (ACICS), the Kentucky Council on Postsecondary Education, and the Indiana Commission on Proprietary Education.  The Culinary Academy of Long Island and the Culinary Academy of New York are both licensed through the Bureau of Proprietary School Supervision and accredited by the Accrediting Commission of Career Schools and Colleges of Technology (ACCSCT). Blue Cliff College is licensed by the Louisiana Department of Education Proprietary School Commission and the Mississippi Commission on Proprietary School and College Registration, and accredited by ACCSCT.

 

Beckfield College, Culinary Academy of New York, Culinary Academy of Long Island, and Blue Cliff College campuses in Mississippi and Louisiana are approved by the Department of Education to provide Title IV Federal Aid to qualified applicants.

 


Standard (e) in §3.58(e)(6)(ii)

: Evidence that the prospective owner has not engaged in fraudulent or deceptive practices.

 

              The Department’s review revealed no evidence of fraudulent or deceptive practices by Quad Partners or any of its related partnerships.

 

 

II.            Owner’s Plan for Operation

 

Quad Partners plans no major changes to Swedish Institute.  According to the application, Quad Partners “intends to increase enrollment slowly over the next five years in order to maintain academic quality.”  It does note, however, that it has a separate application pending with the Department for the acquisition of Pacific College of Oriental Medicine, a proprietary degree-granting institution in Manhattan. While maintaining the two as separate institutions of higher education, Quad Partners intends to provide a common management for them. It asserts that this ownership/management arrangement will provide critical benefits for Swedish Institute, such as expanded academic opportunities, improved administrative capabilities, and increased financial resources.

 

The proposed owner plans to continue to operate in Swedish Institute’s current location in Manhattan. The Institute has no branches, extension sites or interinstitutional programs, but has a number of affiliations for internship sites.  The proper faculty and department heads supervise and monitor all internship sites and activities to assure compliance with the Commissioner’s Regulations.

 

Swedish Institute’s 2008 five-year financial plan projects full-time enrollment growing by an average of about 30 students per year, from 603 in 2008 to 748 in 2013.  Quad Partners intends to keep most of the college’s current operational structure in place, using the same tri-semester model, curricula, accrediting bodies, faculty, evaluation systems, and educational programs.

 

While senior administration (President, Dean of Acupuncture, Dean of Massage Therapy, Dean of Administration and Operations, Chief Operating Officer, Chief Financial Officer, Dean of Information Services, Director of Special Projects, and Director of Regulatory Affairs) will be responsible for final policy determinations, Swedish Institute is committed to the full participation of faculty in the governance of the college.  The Massage Therapy and Acupuncture departments have similar operational structures, but vary according to the curricular and clinical needs of each profession.  For the Massage Therapy Department the principal vehicle for faculty governance at the departmental level is the Massage Therapy Curriculum Committee, consisting of the Academic Dean for Massage Therapy and the six content department chairs.  A core group consisting of the Dean and a limited number of chairs meets weekly to deal with operational issues and ongoing work with curriculum, new courses, professional development, academic standards and faculty review. Instructors are often invited for discussions relating to their specialties or for participation in ad hoc groups established for special projects. 

 

              The Acupuncture Department is managed by a committee consisting of the Academic Dean for Acupuncture, the Administrative Dean for Acupuncture, the Dean of Curriculum Development and Research, the three department chairs (Acupuncture and Oriental Studies, Clinical Skills and Biosciences) and the Clinical Director. This committee meets approximately weekly, under the direction of the Administrative Dean, and, in addition to operational issues, deals with curriculum, academic standards, assessment and professional development.  Issues raised by the Program Advisory Committee and the Student Advisory Council are also discussed.

 

The curricular objectives and student expectations are stated in the catalog, printed materials, and online.  The syllabi and curricular materials that were supplied were standard curriculum materials expected from programs that are licensure qualifying.  Quad Partners intends to maintain the current catalog, online materials and policies. The most recent program change in December 2007 involved refocusing the Acupuncture program as a multiple award B.P.S./M.S. program and moving away from the stand alone M.S. program.  Quad Partners intends to maintain this focus.

 




Appendix A

 

Swedish Institute, Inc.

 

A. Institutional Information.  Swedish Institute, Inc. is a New York business corporation located in Manhattan.  Founded in 1916, Swedish Institute is the oldest school of massage therapy in the United States.  It was first licensed by the Department in the 1930s. Swedish Institute is a for-profit institution that was first incorporated under Business Corporation Law in 1954. In August 1999, the Institute received approval to award the Associate in Occupational Studies (A.O.S.) degree to students completing the massage therapy program.  In November 2003, the Board of Regents authorized the Institute to confer the Bachelor of Professional Studies (B.P.S.) and Master of Science (M.S.) degrees.

 

The college occupies three floors of a ten-story building in Manhattan, including classrooms, clinics, a student lounge equipped with computer stations, a library, bookstore and all administrative offices.  Classrooms are equipped with tools that enhance learning, such as anatomical models, audiovisual equipment, and digital technology.  There are three specialized clinic areas with individual treatment spaces and a reception area for patients. The library contains texts, journals, and research materials related to each profession, and offers access to electronic databases.

 

Enrollment at the college has been fairly consistent over the past five years, increasing from 566 students in 2003 to 655 students in 2007.

 

B. Academic Information.  Swedish Institute graduates have consistently had excellent pass rates on the New York State Massage Therapy examination. In January 2008, of the 169 candidates sitting for the examination, 96% passed. For first-time candidates, 98% passed. The college reports that 81% of its acupuncture graduates passed the NCCAOM examination in 2006 and that 92.3% of the graduates are working in their field. The Institute attributes its success to its faculty, resources, and rigorous academic standards and requirements.

 

Both the Massage Therapy and Acupuncture programs operate on a tri-semester model, requiring students to take between 14-17 credit hours per semester.  The licensure-qualifying Massage Therapy program consists of 61.5 credit hours leading to the A.O.S. degree.  Students must take a core which includes anatomy & physiology, neurology, massage techniques, pathology and professional development, in addition to supervised clinical internships.

 

The licensure-qualifying, 144.5 credit-hour Acupuncture program leading to B.P.S./M.S. degrees consists of a foundation of general education courses and the philosophical basis of Chinese medicine, and progresses to more advanced courses in muscular and skeletal anatomy, physiology, biomedical pathology, and location of acupuncture points.  The program also requires supervised clinical internships, a comprehensive examination, and a Master’s portfolio.

Swedish Institute has a well qualified faculty that offers sound programs of study. In 2005, it had 20 full-time and 64 part-time faculty for a student-faculty ratio of 9.9:1. It provides appropriate academic services to support the students it enrolls.

 

Swedish Institute uses Licensed Massage Therapists to teach Massage Therapy A.O.S. degree program techniques courses. Instructors must have three years of experience working in the field, or its equivalent. Non-technique courses may be taught by instructors who are not massage therapists but otherwise qualified through education or experience.  A total of 59 instructors teach various courses in the Massage Therapy program.

 

Faculty teaching Oriental medicine or acupuncture technique and clinical courses typically have a professional license and an appropriate terminal degree in the field – a  Master’s degree in acupuncture or traditional Oriental medicine or its equivalent.  They must also have a minimum of three years of patient care experience.  Clinic supervisors are licensed in New York State and have a minimum of five years of patient care experience.  A total of 34 instructors teach acupuncture, Oriental medicine and/or clinical courses in the program.  All are licensed acupuncturists, one has a Ph.D. (from China) in the field and 28 have terminal Master’s degrees in the field.  Five do not have terminal degrees but completed accredited acupuncture programs and/or have otherwise equivalent education and experience. 

 

C. Financial Information.  Swedish Institute’s current tuition and fees for full-time students is approximately $10,000 per year.  The five-year financial plan projects average tuition per student to rise modestly each year and average around $12,000 by 2013.  The programs are currently eligible for state and federal grants and loans.

 

The Department reviewed the audited financial statements for the Institute for the period ending June 30, 2007. The balance sheet indicated the College had $20,592 in cash and operated at a loss of $566,076 on $5,867,192 of total revenue for the period. Their expenses exceeded revenue by eight percent. The federal composite score for the period was 1.2, which is interpreted as “financially responsible” but in the zone where additional monitoring was needed. The composite scores for 2006 and 2005 were 1.7 and 1.8, respectively.  These scores are interpreted as “financially responsible.” Part of this decrease in the federal composite score for the last year may be attributed partially to the illness of the owner.

 

Projections for the 2008 fiscal year include a net loss of $688,889 on total revenue of nearly $6.6 million.  Financial projections indicate a return to profitability by 2010, with a modest increase in enrollment, tuition, and a leaner administrative structure.  By the fifth year of operation, there is a projected net income of over $700,000 on $9 million in revenue, representing a seven percent margin.

 


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