Charter Schools Are Drowning in Red Ink

ATLANTA (CN) - The primary lender for a money-losing chain of charter schools wants a receiver appointed so more than 10,000 students, teachers and staff will not be out in the cold, and classes can continue.

Tatonka Capital Corp. sued Mosaica Education Inc. and six wholly owned subsidiaries on Friday in Federal Court.

Mosaica is in default on $20 million of debt to Tatonka, the Denver-based plaintiff says. Tatonka claims it has first lien on "substantially all of MEI's operating assets," and that "a series of bad business decisions" caused Mosaica to lose more than $86 million.

Mosaica has not made a regular payment to Tatonka since July 2013, according to the complaint.

"Its major problem is that it makes investments into failing operations, throwing good money at bad situations despite the negative cash flow created by those investments," Mosaica says.

Founded in 1997, Mosaica manages more than 30 K-12 schools with 25,000 students, more than 10,000 of them in the United States.

"Tatonka could foreclose, but foreclosure would adversely affect thousands of schoolchildren, teachers, others, and the going concern value of the business," the complaint states.

Mosaica denied the allegations in a statement and noted that it "will vigorously oppose" Tatonka's lawsuit.

"Mosaica Education operations will continue to proceed as usual, as will the day-to-day operations at all Mosaica schools," the organization added.

In a message to stakeholders, Mosaica emphasized its "sound business practices that have helped the company continue to grow over 17 years and weather a nation-wide recession with minimal impact."

Tatonka claims that Mosaica is generally not appearing or defending itself in claims filed by other creditors.

Therefore, it says, "Tatonka has chosen to seek the appointment of a receiver in order to keep the schools operating without shutting down, even for a day. This is one of Tatonka's express contractual remedies. This permits MEI's most valuable assets, its teachers, to continue to work without interruption. Meanwhile, MEI's finances can be restructured and the schools can continue to operate throughout that period and thereafter."

The 37-page lawsuit contains a laundry list of allegedly ill-advised management decisions, including failing to sell unused property, keeping staff at empty schools, and an online school that has lost $1 million a year for "multiple years."

Tatonka seeks appointment of a receiver and payment of the loans.

It is represented by Graham Stieglitz, with Burr & Forman, in Atlanta.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit