Hong Kong, September 09, 2019 -- Moody's Investors Service has changed the outlook on Nord Anglia Education,
Inc. and Fugue Finance B.V.'s ratings to negative
from stable.
At the same time, Moody's has affirmed Nord Anglia's
B2 corporate family rating (CFR) and the B1 senior secured rating on the
term loan facility at Fugue Finance B.V.
RATINGS RATIONALE
"The change in outlook mainly reflects the slower-than-expected
improvement in Nord Anglia's financial leverage, with Moody's-adjusted
debt/EBITDA (pro forma for acquisitions) staying elevated at around 8.5x-8.7x
for the fiscal year ended August 2019, which is outside the tolerance
level for its B2 CFR," says Sean Hwang, a Moody's
Analyst.
Despite the company's improving operating performance, backed
by solid demand for its premium education services, deleveraging
remains below Moody's expectations.
Moody's estimates Nord Anglia's Moody's-adjusted
EBITDA (after adding back lease expenses and the full-year impact
of acquired schools) increased to around $460 million in fiscal
2019 from $384 million in fiscal 2018. Moody's expects
EBITDA will grow further in fiscal 2020, reflecting robust growth
in enrollments and tuition fees, as well as contributions from schools
set to open during the year.
While such earnings growth could gradually reduce the company's
elevated financial leverage over time, uncertainty remains around
the magnitude and pace of such deleveraging, because of (1) the
company's strong appetite for inorganic growth; and (2) some
inherent uncertainty over the company's ability to sustain its strong
margins amid its rapid expansion and slowing macro conditions.
Nord Anglia's ratings continue to reflect the company's (1)
strong premium position as one of the larger players 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; and (2) its exposure to evolving regulatory and economic
environments in emerging markets.
Nord Anglia's ratings also factor in its partial private-equity
ownership, reflected in its financial policy of tolerance for high
leverage and its pursuit of aggressive debt-funded growth.
That said, this risk is partly offset by Moody's understanding
that Baring Private Equity Asia and the other major investor, Canada
Pension Plan Investment Board, have a long-term investment
horizon, as well as by their more recent history of equity support
for Nord Anglia's acquisitions in 2019.
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) sustains free cash flow to debt in the low single
digits.
The rating could be downgraded if (1) Nord Anglia's business conditions
deteriorate; (2) adjusted debt/EBITDA fails to decrease below 7.5x
on a sustained basis; or (3) its liquidity deteriorates and free
cash flow generation falls towards zero.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in October 2016. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Nord Anglia Education, Inc. is headquartered in London and
operates 66 international premium schools in Asia, Europe,
the Middle East, and North and South America, with more than
64,000 students ranging in level from pre-school through
to 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 May 2019,
Nord Anglia reported revenues of $1.3 billion.
REGULATORY DISCLOSURES
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.
Moody's considers a rated entity or its agent(s) to be participating
when it maintains an overall relationship with Moody's. Unless
noted in the Regulatory Disclosures as a Non-Participating Entity,
the rated entities are participating and the rated entities or their agent(s)
generally provide Moody's with information for the purposes of its
ratings process. Please refer to www.moodys.com for
the Regulatory Disclosures for each credit rating action under the ratings
tab on the issuer/entity page and for details of Moody's Policy
for Designating Non-Participating Rated Entities.
Regulatory disclosures contained in this press release apply to the credit
rating and, if applicable, the related rating outlook or rating
review.
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.
The first name below is the lead rating analyst for this Credit Rating
and the last name below is the person primarily responsible for approving
this Credit Rating.
Sean Hwang
Analyst
Corporate Finance Group
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Chris Park
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
Releasing Office:
Moody's Investors Service Hong Kong Ltd.
24/F One Pacific Place
88 Queensway
Hong Kong
China (Hong Kong S.A.R.)
JOURNALISTS: 852 3758 1350
Client Service: 852 3551 3077
