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Related Issuers
Rating Action:

Moody's Assigns B1 Rating to Laureate's Proposed Credit Agreement

15 Mar 2011

Approximately $2.6 Billion of Rated Debt Affected

New York, March 15, 2011 -- Moody's Investors Service assigned a B1 rating to Laureate Education, Inc's ("Laureate") proposed credit agreement, consisting of a $300 million senior secured revolving credit facility due 2016 and a $1.295 billion senior secured term loan due 2018. Concurrently, Moody's affirmed the company's B2 corporate family rating, B2 probability-of-default rating, and its various debt ratings.

Ratings assigned:

Proposed $300 million senior secured revolving credit facility due 2016 at B1 (LGD3, 43%);

Proposed $1.295 billion senior secured term loan due 2018 at B1 (LGD3, 43%).

Ratings affirmed:

Corporate Family Rating at B2;

Probability-of-Default Rating at B2;

$260 million 10% senior unsecured notes due 2015 at Caa1 (LGD5, 84%). Point estimate revised from (LGD5, 83%);

$511 million 10.25%/11% senior unsecured PIK toggle notes due 2015 at Caa1 (LGD5, 84%). Point estimate revised from (LGD5, 83%);

$286 million 11.75% senior subordinated notes due 2017 at Caa1 (LGD6, 95%). Point estimate revised from (LGD6, 94%).

Ratings to be withdrawn at transaction completion:

Senior secured revolving credit facility due 2013 at B1 (LGD3, 43%);

Senior secured term loan due 2014 at B1 (LGD3, 43%);

Delayed draw term loan due 2014 at B1 (LGD3, 43%).

RATINGS RATIONALE

Proceeds from the proposed credit agreement will primarily be used to refinance the existing credit agreement and reduce revolving credit facility borrowings. Moody's favorably views the transaction to the extent it improves the company's debt maturity profile and enhances liquidity. The affirmation of the ratings reflects Laureate's solid enrollment trends and improved operating income, but also considers its high financial leverage and expectations for modest free cash flow generation due to high levels of discretionary capital spending.

Laureate's B2 corporate family rating reflects its high leverage of about 6.0 times based on debt to EBITDA through the twelve months ended September 30, 2010 (including Moody's standard analytical adjustments), aggressive acquisition activity, ongoing earnings volatility largely related to non-operational items, vulnerability to interest rate and currency fluctuations although recognizing the company's efforts to manage these risks, some institution-specific issues that have impacted profitability in recent years, and challenges related to the Department of Education's proposed gainful employment regulations. However, the rating is supported by the company's prominent market position in the international for-profit, post-secondary education space, solid enrollment growth supported by the breadth of its presence in multiple geographies (many of which are growing), continuing successful execution on its growth-oriented strategy, favorable industry fundamentals, and expectation for positive GDP growth in most of the countries it operates, which should support positive enrollment trends. Although Moody's views Laureate's pro forma liquidity profile as good given its significant unrestricted cash balance and available capacity under its revolving credit facility, there are calls on cash in the form of minority put arrangements and mandatory debt payments.

The stable outlook reflects Moody's expectation that Laureate will continue to sustain solid revenue growth in excess of 10%, increase its earnings, and improve its operating margins such that debt to EBITDA is reduced below 5.5 times (including Moody's standard analytical adjustments) over the next year. The rating also reflects our expectation that the company will continue to generate modest positive free cash flow and that any acquisition activity will be within expectations.

The rating is restrained by modest cash flow generation and weak return on assets. However, to the extent Laureate can improve its margin profile and return on assets, sustain a free cash flow to debt in excess of 5.0%, demonstrate continued profitable enrollment growth, and sustainably reduces financial leverage below 5.0 times, this could result in positive ratings pressure.

The ratings or outlook could be pressured if weaker than expected growth in enrollments, and/or a significant ramp-up in debt financed acquisition activity results in debt to EBITDA exceeding 6.5 times or EBITDA less capex declining to 1.0 times. Sustained negative free cash flow and/or reduced cushion under financial covenants could also pressure the ratings.

The ratings are subject to the conclusion of the transactions, as proposed, and Moody's review of final documentation.

The principal methodologies used in this rating were Global Business & Consumer Service Industry Rating Methodology published in October 2010, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

For further detail, subscribers can refer to Moody's Credit Opinion for Laureate Education, Inc. found on www.moodys.com.

Laureate Education, Inc. is based in Baltimore, Maryland, and operates a leading international network of accredited campus-based and online universities with more than 50 institutions in 21 countries, offering academic programs to over 550,000 students through over 100 campuses and online delivery. Laureate had revenues of approximately $2.7 billion in the twelve months ended September 30, 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, public information, and confidential and proprietary Moody's Investors Service information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of assigning a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Daniel Marx
Analyst
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Alexandra S. Parker
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Assigns B1 Rating to Laureate's Proposed Credit Agreement
No Related Data.
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