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
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same series, category/class of debt, security or pursuant
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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
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Regulatory disclosures contained in this press release apply to the credit
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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.
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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
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