200 million of school money paid off loans

4:42 min

An investigation by television broadcaster SVT claims that one of Sweden's largest free school companies, JB Education, used over SEK 200 million of school funding to pay off interest loans to owners and banks before it went bankrupt.

Last month it was revealed that the Swedish Economic Crime Authority had begun an investigation into JB Education and its bankruptcy, for an unspecified offence.

SVT, in its programme, The School Party, to be aired Thursday, reports that in 2007, SEK 30 million which should have gone to educating pupils at JB's schools went to meeting interest payments on loans used to buy the company. Since its inception in 2006 and its bankruptcy this year, SVT says SEK 200 million was paid in interest.

SVT financial analyist Peter Malmqvist believes that the interest payment costs played a large part in the private company going bankrupt, but Vilhelm Sundström from risk capitalist firm Axcel, which bought John Bauer Enterprises in 2008, denies this is the case, stating that high rental costs against declining student numbers at its 36 schools was a factor.

"John Bauer did not go out of business because we had loans," he says to SVT.

He does admit though that a leveraged buy-out creates greater vulnerability when student numbers decline, and there is therefore a higher risk of bankruptcy.

"Yes, it is true that the risk increases if you have a high debt," says Vilhelm Sundström.

In the summer, business daily Dagens Industri reported that Sweden's free schools ( private schools with public funding), are facing tough competition due to demographic changes and fewer students.

JB Education had more than 11,000 students and over 1,600 employees. Most schools have been taken over by new owners while a few have been phased out.