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Rating Action:

Moody's affirms Nord Anglia's B2 CFR and assigns a B2-PD; outlook remains negative

30 Oct 2020

London, 30 October 2020 -- Moody's Investors Service ("Moody's") has today affirmed Nord Anglia Education, Inc's ("Nord Anglia") B2 corporate family rating (CFR) and the B1 senior secured rating on the term loan B facility at Fugue Finance B.V. At the same time, the rating agency has assigned a B2-PD probability of default rating to Nord Anglia. The outlook of both Nord Anglia and Fugue Finance B.V. remains negative.

Today's rating actions reflect the following drivers:

- Leverage, as measured by Moody's adjusted debt / EBITDA, is around 9x for the fiscal year ended 31 August 2020 ("fiscal 2020"), largely driven by the impact of the coronavirus outbreak on the group's EBITDA.

- Although timing of any recovery is uncertain, Moody's expects enrolment levels and fees to stabilize during fiscal 2021, resulting in some de-leveraging at Nord Anglia over the next 12-18 months. Moody's expectation is that the primary & secondary private education sector will not return to growth in line with historical level until fiscal 2022 at the earliest.

- Good liquidity with over $820 million in available cash balances (excluding overdrafts) and $315 million availability under the recently upsized $345 million revolving credit facility ("RCF").

- Solid operating cash flow which Moody's expects will be sufficient to cover capital expenditure requirements, resulting in modest free cash flow generation that could increase over time.

The coronavirus outbreak, the government measures put in place to contain it, and the weak global economic outlook continue to disrupt economies and credit markets across sectors and regions. Although an economic recovery is underway, it is tenuous and its continuation will be closely tied to the containment of the virus. As a result, the degree of uncertainty around Moody's forecasts is unusually high. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

RATINGS RATIONALE

Nord Anglia's ratings continue to reflect the company's (1) strong premium position as one of the larger operators in the fragmented private-pay education industry; (2) predictable and stable cash flow and strong margins, underpinned by robust demand; (3) high degree of geographic diversification; and (4) good liquidity. These strengths are counterbalanced by (1) the company's high financial leverage; (2) modest free cash flow generation driven by capacity expansion strategy; and (3) exposure to evolving regulatory and economic environments in emerging markets.

Social and governance factors are important elements of Nord Anglia's credit profile. Nord Anglia's ratings factor in its partial private-equity ownership, reflected in its financial policy of tolerance for high leverage and its pursuit of debt-funded growth. That said, this risk is partly offset by the well-defined acquisition strategy and the shareholders' track record of equity support.

Education is one of the sectors identified by Moody's as facing high social risk. The rising demand for quality education in emerging markets is supported by rising disposable income amongst middle class, as well as persistent supply/demand imbalances in the public education system as demand for highly rated schools ordinarily outstrips supply. Compliance with local regulations is critical in the sector and Moody's is not aware of any issues related to Nord Anglia's schools.

LIQUIDITY PROFILE

Nord Anglia's liquidity is good. Moody's forecasts liquidity as at 31 August 2020 to comprise over $820 million in available cash balances (excluding overdrafts) and $315 million availability under the recently upsized $345 million RCF maturing in 2022. The RCF contains one springing First Lien Net Leverage covenant which is set at 7x and tested quarterly only when the RCF is 35% drawn, under which adequate headroom is expected to be maintained.

STRUCTURAL CONSIDERATIONS

The senior secured first-lien Term Loan B is rated one notch higher than Nord Anglia's CFR, reflecting the cushion provided by the second-lien loans and unsecured claims.

RATING OUTLOOK

The rating outlook is negative, mainly reflecting Moody's expectation that Nord Anglia's financial leverage will remain elevated over the next 12-18 months, despite gradual deleveraging.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

An upgrade is unlikely over the next 12-18 months, given the negative outlook. Nevertheless, the outlook could return to stable if the company (1) maintains stable business conditions; (2) pursues acquisitions in a prudent manner; (3) reduces leverage, such that adjusted debt/EBITDA remains below 7.5x on a sustained basis; and (4) maintains free cash flow (FCF)/debt in the low single digits in percentage terms.

The rating could be downgraded if (1) Nord Anglia's business conditions deteriorate; (2) adjusted debt/EBITDA remains substantially above 7.5x on a sustained basis; or (3) its liquidity deteriorates; or (4) and free cash flow generation falls towards zero.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

CORPORATE PROFILE

Nord Anglia Education, Inc is headquartered in London and operates 69 international premium schools in Asia, Europe, the Middle East, and North and South America, with around 65,000 students ranging in level from preschool through secondary school. Nord Anglia also provides outsourced education and training contracts with governments and curriculum products through its Learning Services division. For the 12 months ended August 31st 2020, Nord Anglia generated revenue of $1.4 billion. Nord Anglia is owned by a consortium led by the Canada Pension Plan Investment Board and funds affiliated with Baring Private Equity Asia Group, Inc.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

At least one ESG consideration was material to the credit rating action(s) announced and described above.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Lucia Lopez
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Richard Etheridge
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
Client Service: 44 20 7772 5454

No Related Data.
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