London, 17 December 2021 -- Moody's Investors Service ("Moody's") has today
affirmed Nord Anglia Education, Inc's B2 corporate family
rating (CFR) and B2-PD probability of default rating (PDR).
Concurrently, Moody's has affirmed the B1 instrument rating
of the backed senior secured term loan due 2024 issued by Fugue Finance
B.V. The outlook on all ratings has been changed to stable
from negative.
RATINGS RATIONALE
The affirmation of Nord Anglia's B2 CFR with stable outlook reflects
Moody's expectation that the group will continue to reduce its Moody's-adjusted
leverage below 7.5x within the next 12 to 18 months, in line
with the requirement for its B2 rating. Following its good operating
performance in fiscal year 2021, ended 31 August 2021, leading
to an increase of Moody's-adjusted EBITDA by 16% to
$468 million, Nord Anglia's Moody's-adjusted
leverage notably declined to 8.7x from the very high level of 10.3x
recorded in fiscal year 2020. While in fiscal year 2021 its operations
continued to be disrupted by the lasting effects of the coronavirus pandemic,
Moody's expects Nord Anglia to continue its recovery into fiscal
year 2022, driven by student enrollment growth in the high-single
digits in percentage terms and normalised tuition fee increases.
The rating action further reflects Nord Anglia's good liquidity
profile, with $628 million of cash on balance sheet at the
end of August 2021 and full access to its recently upsized and extended
$400 million revolving credit facility (RCF) with a maturity in
2024. Moody's further expects that Nord Anglia will be able
to generate good free cash flows, providing the group with a source
of funding for future acquisitions and limiting the need for additional
debt.
The B2 CFR further reflects (1) Nord Anglia's leading position as
one of the largest operators in the fragmented K-12 education market,
with a geographically diversified portfolio of 77 schools in 31 countries
with a focus on the premium segment; (2) the high degree of revenue
and cash flow visibility from committed student enrollments and upfront
fee collection; (3) the barriers to entry through regulation,
brand reputation and a purpose-built real estate portfolio;
and (4) the group's good liquidity profile.
Conversely, the CFR is constrained by (1) Nord Anglia's financial
policy with tolerance for high financial leverage; (2) the historically
weak free cash flow generation constrained by the capacity expansion strategy;
(3) the group's reliance on its academic reputation and brand quality
in a regulated environment; and (4) its exposure to evolving regulatory
and economic environments in emerging markets.
ESG CONSIDERATIONS
Nord Anglia's ratings factor in certain governance considerations
such as the private ownership structure with the majority of shares owned
by a consortium led by the Canada Pension Plan Investment Board and funds
affiliated with Baring Private Equity Asia Group, Inc. The
ratings further reflect Nord Anglia's financial policy which shows
a record of high leverage and debt-funded growth. At the
same time Moody's notes the recent additional equity contributions
by the shareholders to finance acquisitions.
RATING OUTLOOK
The stable outlook reflects Moody's expectation that Nord Anglia
will be able to continue deleveraging towards 7.5x in fiscal year
2022, on the back of continued student enrollment and tuition fee
growth which will drive further EBITDA improvement. The outlook
further assumes that Nord Anglia is able to manage the regulatory changes
in China in a way that does not materially affect Nord Anglia's
local operations and ensure future profit contribution to the group as
the China Bilingual schools continue to ramp up.
FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS
An upgrade is unlikely in the near term considering the still high leverage,
but upward rating pressure on the ratings could occur if Moody's-adjusted
Debt/EBITDA sustainably decreases below 6.5x, Free Cash Flow/Debt
is sustained above 5%, while maintaining a good liquidity
profile.
The rating could be downgraded if Nord Anglia is not able to organically
grow its revenue and EBITDA, Moody's-adjusted Debt/EBITDA
fails to sustainably decrease to around 7.5x, free cash flow
turns materially negative or liquidity deteriorates. Any material
negative impact from a change in any of the schools' regulatory approval
status could also lead to a downgrade.
LIQUIDITY PROFILE
Moody's considers Nord Anglia's liquidity profile to be good.
On 31 August 2021, the group had $628 million of cash on
balance sheet and access to the fully undrawn $400 million RCF,
which was recently increased by $55 million and extended to September
2024.
The RCF is subject to a springing net first-lien leverage covenant
which is set at 7.0x and tested quarterly when the RCF is drawn
down for more than 35%. At the end of August 2021,
the company had sufficient headroom under the covenant and Moody's
expects this to continue to be the case going forward.
STRUCTURAL CONSIDERATIONS
The B1 instrument rating of the backed senior secured first-lien
term loan due 2024 is one notch above the B2 CFR and reflects the priority
position of this facility ahead of the second-lien loans and non-debt
liabilities such as leases and trade payables.
PRINCIPAL METHODOLOGY
The principal methodology used in these ratings was Business and Consumer
Services published in November 2021 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1287897.
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 77 international premium schools in 31 countries across Asia,
Europe, the Middle East, and North and South America,
with around 67,000 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.
During the fiscal year ended August 2021, Nord Anglia generated
revenue of $1.5 billion. The group 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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Timo Fittig
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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