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Moody's rates Knowledge Learning loan Ba3
Moody's Investors Service has assigned a Ba3 rating to Knowledge Learning Corp.'s $38 million senior secured term loan B that will be an add-on to the existing $197 million senior secured term loan B. The outlook is stable.
Moody's said the ratings are limited by the company's high leverage, heavy reliance on leases, and the continued challenge of raising occupancy rates due to economic conditions. Competition and the general economy also affect demand for the company's services.
The company experiences relatively high teacher churn rate (although lower than the industry's rate), high facilities costs, and is affected by climbing insurance rates. Knowledge Learning also has had difficulty in improving average occupancy rates to more than 60%. Furthermore, management's attention has been diverted toward the integration of Aramark Educational Resources, which when acquired in May of 2003 was three times larger than Knowledge Learning.
Moody's said the ratings benefit from the synergies and scale expected to be achieved through its Aramark acquisition that closed on May 9, diversified customer base, and stable business model.
The company has identified a number of under-performing old Aramark centers that have been closed or will be closed by the end of 2003. The company also is well underway in the integration of its center operating systems and has significantly reduced administration.
The stable ratings outlook reflects Knowledge Learning Corp.'s consistent customer demand and diversified customer base. The company expects to add only 10 centers per year commencing in 2004 thereby allowing for higher levels of free cash flow.
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