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03 Jun 2003
MOODY'S ASSIGNS Ba3 RATING TO KINDERCARE LEARNING CENTERS' $125 MILLION REVOLVING CREDIT FACILITY
Approximately $775 Million of Debt Securities Affected
New York, June 03, 2003 -- Moody's Investors Service has assigned Ba3 to Kindercare Learning
Centers' $125 million senior secured revolving credit facility
and confirmed existing ratings. The ratings reflect the company's
high leverage, competitive environment, and the challenging
economic environment as well as diversified revenue base and its position
as the largest childcare provider in the United States.
Moody's Investors Service assigned ratings (subject to review of final
documentation) to Kindercare Learning Centers ("Kindercare")
$125 million proposed Senior Secured Revolving Credit Facility
assigned a Ba3
Moody's has confirmed the following ratings:
$50 million Senior Secured Term Loan B, rated Ba3
$300 million Senior Subordinated Notes, rated B3
Senior Implied, rated B1
Issuer Rating, rated B2
Moody's will withdraw the following rating upon completion of the
$300 million Senior Secured Revolver, rated Ba3
The rating outlook is stable.
The ratings reflect the company's positioning as the largest provider
of early childhood education and care services in the United States and
its expansive reach that allows for regional diversification and strong
brand recognition. The company's revenues are derived from
providing services to families of over 130,000 children who pay
approximately $140 per week on average to have Kindercare attend
to their children. The company franchise has been reasonably stable
and has been in demand as evidenced by the company's historical
ability to raise rates faster than inflation.
The ratings also reflect the company's high leverage, challenging
occupancy trends, and the ongoing impact of a difficult economic
environment. Of these, the economy is the largest concern
because the weaker the economy the more difficult it becomes to raise
rates in order to offset occupancy declines. Additionally,
the weak economy may lead more families to consider other childcare alternatives.
The Ba3 rating on the proposed revolving credit facility considers the
collateral package. Security includes a perfected first priority
pledge of and security interest in all the capital stock of each existing
and each subsequently acquired or organized domestic subsidiary of the
borrower and each material direct foreign subsidiary of the borrower,
limited to 65% of the capital stock of the foreign subsidiary.
Additional collateral comes from approximately $130 million in
estimated market value of certain real estate assets that have a book
value of approximately $65.8 million. Proceeds from
any sale leaseback transactions and excess cash flow may be used to repurchase
senior subordinated notes if the aggregate amount of loans outstanding
under the facility does not exceed $25 million. If assets
representing the collateral are sold they must be replaced with property
of an equivalent fair market value or the amount of the revolving credit
commitment must be permanently reduced by an amount at least equal to
the fair market value of the asset sold. The senior credit facility's
Ba3 rating is notched above its Senior Implied rating to reflect the tangible
security. The rating of the Senior Subordinated notes reflects
their subordination and priority of claim in the company's capital
The stable outlook reflects the belief that the company's performance
should be reasonably stable under most scenarios. Kindercare has
the flexibility, should a more severe downturn in the market occur,
to reduce the number of new center builds or to reduce its rates to stimulate
occupancy levels. The company could also sell non-collateralized
real estate as an additional form of financing and to supplement cash
flows. The use of proceeds from the sale of real estate or other
financings would be important in determining its effect on the ratings.
The ratings could be negatively affected if occupancy levels were to deteriorate
significantly and the company was unable to offset this decline with higher
fees. The ratings could also come under pressure if the company
does not receive adequate returns on its relatively large capital expenditure
program. The ratings could improve if the company reduces leverage
significantly or if the company was to experience significantly higher
For projected FYE 2003 total debt to EBITDA is estimated at 4.3x
and senior debt to EBITDA is projected at 2.45x. Proforma
EBITDA coverage of interest is estimated at 3.1x while proforma
EBITDA less capital expenditures over interest is only around 1.1x.
Kindercare Learning Centers, Inc., headquartered in
Portland, Oregon, is the leading for-profit provider
of early childhood education and services in the United States.
At April 18, 2003, Kindercare operated a total of 1,268
childcare centers and served approximately 132,000 children and
their families in 39 states. Kindercare also operates 2 centers
in the United Kingdom.
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service
No Related Data.
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