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SSH, Eos and the flight training industry


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Posted at the JH alternative board:

 

Here's some telling insights from an interview in the WSJ today with the CEO of Sallie Mae.

 

Discussing a deal last year that Sallie Mae was doing with B of A and JPM, the CEO said:

 

"The timing was as bad as could be. We signed that deal in April 2007... Initially we thought it would close in October. By then the capital markets were virtually paralyzed."

 

According to Eos, they paid Airola $13 million for a stake in Silver State and put an additional $13 million into the company In NOVEMBER of last year...at a time when the capital markets were already "paralyzed". The "sudden decline in the market for student loans" that Eos and SSH claimed as the reason for the company's bankruptcy had been going on since the summer of 2007. Was Eos really that ignorant of the credit market situation? Or, did Eos not actually put any money into SSH (or maybe got back what they put in via the Orix line of credit) because SSH was already on the downslope to bankruptcy?

 

Here's another quote from that article:

 

WSJ: Earlier this year Sallie Mae indicated it would become more selective in making private-student loans, noting defaults were concentrated among nontraditional proprietary schools where students often fail to graduate. Why were you making such loans in the first place?

 

CEO of Sallie Mae: It was obviously a mistake. (He goes on to offer some lame rationalizations.)

 

The definition of Silver State...and in fact the entire private flight training industry...NONTRADITIONAL PROPRIETARY SCHOOLS WHERE STUDENTS OFTEN FAIL TO GRADUATE.

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The definition of Silver State...and in fact the entire private flight training industry...NONTRADITIONAL PROPRIETARY SCHOOLS WHERE STUDENTS OFTEN FAIL TO GRADUATE.[/i]

 

 

When you go to a prospective school you should ask them the status of their last 10 students. 7 or 8 of them (over 60 hours or so) should be working on their commercial. If half washed out, that should be a sign. I popped in last week where I fly. There were 8 or 9 of us there, I think only one didnt have his PPL, the others are all working on time building, commercial or IFR ratings....that should tell you something... a year ago, pretty much all those guys were students.

 

Again, the sad part of this...there may have been some great future pilots in the group of students now left holding the SSH bag.

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I think it's quite wise to pay for training with a credit card, in that it allows negotiation and security in the transaction. If the school goes out of business and anything has been prepaid, misbilled, or otherwise - the funds are fully recoverable.

 

I actually prepaid the school I trained at, in $10,000 increments to improve the rate I paid hourly but also in my mind my relationship with the school. There was no security issue in this, because I did so with a credit card. Had they gone out of business, nothing would be lost at all.

 

I have financed many many things in my life, but the amount of money needed to train to fly helicopters commercially, vs earning potential in 5 years or less, compounded by the interest rates one typically pays when financing such a thing - I can't imagine doing it! I'd be compelled to work a good job and pay a trade school or pilot license training loan off stupid-fast thats for sure.

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Here is the management of another Silver State "partner" admitting their incompetence. KeyBank...the lender who initally made possible SSH's reign of terror...is cutting its dividend and will report an increased loss related to its sub-prime mortgage business.

 

[KeyBank] wasn't a big subprime player but, like many competitors, expanded aggressively into hot markets such as California and Florida that are now deeply troubled. Mr. Meyer [the CEO] said. "We're trying to admit where we've made mistakes." (WSJ)

 

Big of him! Although, it's not like such losses should come as a big surprise. No-documentation and no-downpayment loans for overprice real estate...give me a break, what did they think was going to happen! And just as KeyBank's management was able to rationalize away the risks of making such loans they also ignored the risks of making "student loans" to those attending "non-traditional proprietarty schools where students often fail to graduate".

 

And also...where were the state departments of consumer protection during the SSH fiasco? Most states have laws on the books forbidding non-registered schools from collecting tuitions up-front. Utah specifically has such a law...and SSH had been operating there since 2003. The Utah Department of Consumer Protection even...finally...had a hearing on SSH in May of 2007, why did they not enforce their own regulations at that time?

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The Beverly Hills attorney who collected $900k from 1,200 students to represent them in SSH's bankruptcy and the San Francisco law firm that filed a class action suit are saying that the lenders participated in SSH's fraud by providing loans to the students. They are going after the lenders because SSH is broke.

 

But look a UHIs website:

 

http://www.universalheli.com/finance.asp

 

FINANCING

If required, 100% financing is available through private student loan programs. Upon enrollment, UHI will provide applicants with all essential financing documents and will personally assist by phone or in person throughout the application process. Loans are agreements between each individual student and the lending institution.

 

Isn't this exactly what SSH was doing...bringing in the students and filling out the paperwork? So how are these lawyers going to show the lenders did anything differently with SSH than they do with any other flight school that offers "financing available"? And if the lenders can't be shown to have done anything wrong who is left to collect from?

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Hi,

 

I don't see how the lenders are liable.

 

Think about it. Are brokers that signed up bad mortgage deals a few years back liable for the end result? Did they make the credit decision?

 

The SSH deals certainly weren't clean, but, the lenders that loaned the money were not really at fault right ? Why would huge lenders knowingly commit fraud for a relatively (in the grand scheme of things) small amount of new business ?

 

Maybe I'm off here.

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On a slightly different note.....I did not think that the SSH fiasco would affect me. It apparently has. I am 1 week away from my PVT checkride, and I have significantly more hours than I anticipated, so I have used up more of my loan. I have a $60k loan from TERi...and I get regular disbursements to my student account, then I pay as I go (sorta like an escrow account).

 

Anyway, I am realizing that I will need about $10k more to get thru CFI training. No problem, give TERi a call and ask how to apply for the additional amount needed. After a conversation with the representative, I learned that basically, because of certain circumstances they would not indulge upon (obviously SSH) they have stopped accepting applications for additional $. So, I cannot get any more $$. Great! Now what. I guess I really need to watch my hours, and maximize my training.

 

Fortunately, I saved alot of $$ with ground training (studied hard at home, came to ground just needed a quick review, so we blasted thru 141 in minimum hours). I pay for all books/misc in cash. I will pay for my checkrides on my own.

 

So, moral of this story is....this disaster as affected how lenders look at flight schools. I wonder how hard it is to get a loan now?

If/when I exhaust my loan I will do what I can to finish my training....even if I have to use a credit card. Hopefully that will not be the case.

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Hi,

 

I don't see how the lenders are liable.

 

Think about it. Are brokers that signed up bad mortgage deals a few years back liable for the end result? Did they make the credit decision?

 

The SSH deals certainly weren't clean, but, the lenders that loaned the money were not really at fault right ? Why would huge lenders knowingly commit fraud for a relatively (in the grand scheme of things) small amount of new business ?

 

Maybe I'm off here.

 

That is exactly what the lenders defense has been…i.e., we just made private loans to the students and we are not responsible for monitoring the financial stability of the flight school they choose to pay those funds to.

 

But…SSH was a fraud. The company sold services it did not have the capability to provide. But…without the lenders SSH would not have been able to do what it did. It was a symbiotic relationship…SSH did the marketing and brought in the customers and the lenders advanced payments on the students’ loans. Both needed the other.

 

The fraud was not apparent until SSH filed bankruptcy. SSH made a concerted effort to portray itself as a financially stable big business (remember the picture of the helicopters, aircraft, equipment and employees lined up on the flightline?). So…should the lenders have known? The students’ lawyers are arguing that yes, the lenders should be held responsible.

 

Hopefully the question will make it to a courtroom.

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It presents a dangerous precedent- Should a lender be aware of the financial state of the recipient of a borrowers funds? That's kind of out there. Should a mortgage lender know the state of the company that built the home? Should a bank that writes car loans know the state of the dealership it's being bought from?

 

Certainly this is a little different, but still: We're talking about requiring a lender to know that the borrower isn't going to get defrauded. It's the borrowers job to check these things out right? Certainly SSH had the appearance of a large organization in it's PR efforts, which we all have to admit were quite well done (not necessarily true though!) but a small amount of research would indicate they weren't so hot pretty quick.

 

That is exactly what the lenders defense has been…i.e., we just made private loans to the students and we are not responsible for monitoring the financial stability of the flight school they choose to pay those funds to.

 

But…SSH was a fraud. The company sold services it did not have the capability to provide. But…without the lenders SSH would not have been able to do what it did. It was a symbiotic relationship…SSH did the marketing and brought in the customers and the lenders advanced payments on the students’ loans. Both needed the other.

 

The fraud was not apparent until SSH filed bankruptcy. SSH made a concerted effort to portray itself as a financially stable big business (remember the picture of the helicopters, aircraft, equipment and employees lined up on the flightline?). So…should the lenders have known? The students’ lawyers are arguing that yes, the lenders should be held responsible.

 

Hopefully the question will make it to a courtroom.

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  • 2 weeks later...

From the other forum board:

 

http://originalforum.justhelicopters.com/D...0525&page=1

 

Rowles joined Silver State in June last year to “clean up” its training program but had tendered his resignation before the bankruptcy. Rowles said he did so after the company resumed high-pressure marketing tactics that created “overcapacity problems” of too many students and not enough helicopters at the school’s 33 locations. Rowles estimated the overcapacity at 20 to 40 percent on average, depending on location. Two locations in Florida had 46-percent overcapacity, according to Rowles.

 

Some interesting questions about what SSH's senior management and investors knew about the overcapacity of students to resources...and when they knew.

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Is this SSH mess causing a slow down in student enrollment?

 

Well, I can tell you that in fact, YES. Money is harder to get, and you can hear the crickets chirping at my particular place of employment. There are a few students who have simply run out of money, and are finding it difficult to secure additional funds. New enrollments are also down, and I attribute this to several factors:

 

1. Tightened restrictions on credit, student loan availability

2. Economy - Higher fuel prices, etc

3. Lack of Silver State Seminars!

 

The third one is kind of funny if you think about it. When Silver State was in town doing seminars, people got excited with all the hype, and many actually researched the situation to find that perhaps SSH was not a wise choice, and went looking at other schools in the area.

 

I am no expert, and certainly there are other factors involved. But we have seen a significant slow down in enrollment as a result of the crunch in financing.

 

So now..... I am off to recruit students! (responsibly and honestly... of course)

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Silver State is in the news again...nothing new though.

 

http://www.tucsonweekly.com/gbase/Currents...tent?oid=112543

 

"Some of the folks at Eos walked away with millions" according to testimony recorded by the trustee in the company's Nevada bankruptcy case, Berger said. "Airola walked away with $13 million. Then in February, the company's in bankruptcy."

 

Berger represents 1,330 former Silver State students--including 28 from Arizona--as creditors in the company's bankruptcy proceedings.

 

"A lot of people seem to be investigating Silver State."

 

And all of these supposed "investigations" are moving at a glacial speed. The FTC, FBI, IRS and various state AGs...you'd think after five months one of these gallant defenders of the public would figure out how to bring the SSH gang to task. Hell, it took five months for SSH to go from a hedge fund's investment opportunity to belly up and broke.

 

And where is the lawsuit this attorney has said he is going to file in the bankruptcy court? So far all it appears that he's done for his million dollars in fees is to file a one page Proof of Claim form for each client.

 

You SSH students better start making some noise or this thing is going to disappear into a bureacratic black hole.

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I guess patience is in order. This CEO just got sentenced to 16 years in the slam and his company went belly up in 2005.

 

Former Refco CEO Loses ‘High-Stakes Poker Game’; Gets 16 Years

by Dan Slater

 

16 years. That was the sentence given to former Refco CEO Phillip Bennett. A Brit living in New Jersey, Bennett had previously pleaded guilty after being charged in a 20-count indictment, including conspiracy to commit securities fraud, in connection with a financial cover-up that brought down Refco, one of the world’s largest commodities brokerages, almost immediately after it went public.

 

Here’s the report from LB colleague Chad Bray.

 

Refco IPO’d in August 2005. It filed for bankruptcy just weeks later — after disclosing that a $430 million debt owed to Refco by a firm controlled by Bennett had been concealed. The disclosure caused Refco’s stock value to plummet.

 

At today’s hearing, SDNY Judge Naomi Reice Buchwald said white-collar defendants like Bennett often “just don’t think they’ll get caught.” Buchwald continued: “You and others like you play a truly high-stakes poker game.”

 

Bennett...is expected to report to prison on Sept. 4. Four former Refco execs have either pleaded guilty to or been convicted of criminal charges in the matter. A long-time lawyer for Refco also is facing criminal charges.

 

Went the investigators start to threaten the underlinings with prison there will be a race to see who can roll over first in return for immunity.

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