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I AGREE
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Ratings to be withdrawn at transaction completion: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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