Hong Kong, June 14, 2017 -- Moody's Investors Service has downgraded Nord Anglia Education,
Inc's (NAE) corporate family rating (CFR) to B2 from B1.
At the same time, Moody's has also downgraded the senior secured
ratings of the $862 million senior secured term loan B, $125
million senior secured revolving credit facility, and CHF200 million
senior secured notes issued by Nord Anglia Education Finance LLC to B2
from B1. Nord Anglia Education Finance LLC is a subsidiary under
NAE.
Moody's has also assigned a B1 senior secured rating to the Euro
equivalent of USD1.225 billion first lien term loan, issued
by Fugue Finance B.V. and guaranteed by Bach Finance Limited.
Bach Finance Limited and NAE - which are part of the restricted
group - will merge with NAE as the surviving entity.
The proceeds from the term loans together with the shareholders'
contribution will be used to repurchase shares from part of the existing
shareholders and to repay existing debt.
The ratings outlook is stable.
This rating action concludes Moody's review of NAE's CFR,
which was initiated on 26 April 2017.
RATINGS RATIONALE
"The downgrade of NAE's CFR reflects the significant increase
in the company's financial leverage, after the completion
of a debt-funded buyout," says Stephanie Lau,
a Moody's Vice President and Senior Analyst.
Moody's expects that NAE's adjusted debt/EBITDA will weaken
to around 10x in the fiscal year ending August 2017 (FY2017) or to about
9.0x on a pro forma basis — assuming full-year earnings
contribution from the acquisitions in FY2017 — from 7.3x
in FY2016. This weakening in its adjusted debt/EBITDA is because
its reported debt will increase to about USD2.2 billion upon the
completion of the buyout from USD1.1 billion at 28 February 2017.
A consortium of investors, led by the Canada Pension Plan Investment
Board and Baring Private Equity Asia will acquire NAE for a total transaction
value of USD4.7 billion, including the repayment of existing
debt. Of the USD4.7 billion, USD1.96 billion
will be funded with debt, which consists of a EUR first-lien
term loan equivalent to USD1.23 billion, a USD315 million
first-lien term loan, and USD416 million second-lien
term loan.
Although the projected financial leverage in FY2017 is high even for NAE's
B2 CFR level, Moody's expects that NAE's pro forma financial
leverage will fall to about 8.0x in FY2018 and further to 7.0x
or below in FY2019. This situation is driven by a steady growth
in earnings — which will be underpinned by a gradual increase in
tuition fees and enrollment — and cost-cutting measures.
NAE's B2 CFR is supported by its solid operating margins and cash flow,
the predictable nature of its revenue based on strong demand, good
geographic diversification and adequate liquidity. The proposed
USD250 million revolving credit facility will further strengthen its liquidity.
At the same time, the rating is constrained by the company's high
financial leverage and appetite for acquisitions.
The B1 rating on the Euro equivalent of USD1.225 billion term loan
reflects the first lien on the company's major operating assets,
including all assets under Viking Holdco Inc., the equity
interests of Bach Finance Limited and most of its material subsidiaries.
This structure means that the term loans rank ahead of other second lien
loans and unsecured claims.
The rating outlook is stable, reflecting Moody's expectation
that Nord Anglia will pursue growth and acquisitions in a prudent manner,
benefit from stable cash flow, fee growth, and better operational
leverage, which will in turn support its leverage trending to 8.0x
over the next 12-18 months.
Upward rating pressure is unlikely over the next 1-2 years,
because of the company's initial high leverage after the transaction.
The rating could be upgraded over time if the company: 1) maintains
stable business conditions; 2) pursues acquisitions in a prudent
manner; and (3) reduces leverage, such that its adjusted debt/EBITDA
stays below 6.0x-6.5x.
The rating could be downgraded if the company: (1) demonstrates
that its business has deteriorated; 2) pursues an aggressive acquisition
strategy, such that its adjusted debt/EBITDA fails to trend down
to 8.0x-8.5x.
Indications of stress on the company's liquidity position would
add further downward pressure on the rating.
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 Hong Kong and operates
44 international premium schools in Asia, Europe, the Middle
East, and North America, with more than 38,400 students
ranging in level from pre-school through to secondary school.
NAE also provides curriculum products through its Learning Services division.
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.
Stephanie Lau
Vice President - Senior 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
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
