Hong Kong, May 04, 2016 -- Moody's Investors Service has changed Nord Anglia Education, Inc's
(NAE) rating outlook to negative from stable.
Moody's has also affirmed the company's B1 corporate family
rating (CFR), as well as the B1 ratings on its $869 million
senior secured term loan B, $125 million senior secured revolving
credit facility, and CHF200 million senior secured notes.
All issuances have been issued by Nord Anglia Education Finance LLC and
are guaranteed by NAE.
RATINGS RATIONALE
"The change in the outlook to negative reflects Moody's expectations
that acquisitions and modest pressure on margins will delay an expected
reduction in leverage, with adjusted debt/EBITDA likely to remain
near 7.0x for fiscal 2016," says Joe Morrison,
a Moody's Vice President and Senior Credit Officer.
NAE has said that it would continue to pursue acquisitions of schools
utilizing the proceeds of its planned sale-and-lease back
transactions of $167 million.
Moody's says that continued acquisition activity could constrain
NAE's ability to realize lower leverage, even though it will
benefit from incremental earnings contributions from acquired schools,
as well as increases in enrollments and tuition fees that should result
in a decrease in the level of leverage in FY2017.
Projected adjusted debt/EBITDA of 6.5x -- 7.0x over
the next 12 months is high for the B1 category.
NAE's results for fiscal second quarter ended 29 February 2016 reflected
modest pressure on reported profit margins, arising in turn from
the impact of recent acquisitions of lower margin schools; expenses
associated with start-up schools (particularly in Chicago),
new school openings; and new employment-related taxes in China.
Moody's estimates that on a pro forma basis, which assumes
full-year revenue contributions from acquired schools and factors
in the recent announced sale-leasebacks of three schools in the
US, NAE's adjusted EBITDA margin, EBITDA interest coverage,
and debt/EBITDA for the 12 months ended 29 February 2016 were about 30%,
about 2.9x, and over 7.0x, respectively.
However, at end-February 2016, NAE had $155
million in cash holdings, excluding bank overdrafts, which
was more than sufficient to cover short-term borrowings under its
revolving credit facility of $74 million. Moody's
notes that the second quarter of the fiscal year is typically the seasonal
low for the company's cash holdings.
NAE's stable and predictable cash flows, which stem from demand
for its premium educational services, support the ratings.
Moody's expects that NAE will be disciplined in executing its acquisition
strategy, acquiring individual schools in existing markets that
are accretive to earnings and cash flow.
Upward rating pressure is unlikely over the next 12-18 months,
given the negative outlook. However, the outlook would likely
return to stable, if the company establishes a track record of pursuing
acquisitions in a more conservative manner and reduces leverage,
such that debt/EBITDA trends toward 6.0-6.5x on a
sustainable basis.
Negative pressure on the ratings could arise if business conditions deteriorate
and/or the company undertakes large-scale acquisitions, such
that leverage -- as measured by adjusted debt to EBITDA
-- stays above 6.0-6.5x over the next 12-18
months.
Furthermore, a material deterioration in the company's liquidity
position would heighten downward pressure on the ratings.
The principal methodology used in these ratings was Business and Consumer
Service Industry published in December 2014. Please see the Rating
Methodologies page on www.moodys.com for a copy of this
methodology.
Nord Anglia Education, Inc. is headquartered in Hong Kong
and operates 42 international premium schools in Asia, Europe,
the Middle East, and North America, with more than 35,300
students ranging in level from pre-school through to secondary
school. NAE also provides outsourced education and training contracts
with governments and curriculum products through its Learning Services
division. For the 12 months ended February 2016, NAE generated
revenues of about $749 million.
REGULATORY DISCLOSURES
For ratings issued on a program, series or category/class of debt,
this announcement provides certain regulatory disclosures in relation
to each rating of a subsequently issued bond or note of the same series
or category/class of debt 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.
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.
Joe Morrison
VP - Senior Credit Officer
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
SUBSCRIBERS: (852) 3551-3077
Gary Lau
MD - Corporate Finance
Corporate Finance Group
JOURNALISTS: (852) 3758 -1350
SUBSCRIBERS: (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
SUBSCRIBERS: (852) 3551-3077
Moody's changes outlook on Nord Anglia Education's B1 ratings to negative