S&P rates Knowledge Universe loan B, positive watch

Standard & Poor's said it placed the CCC rating on Knowledge Universe Education LLC on CreditWatch with positive implications.

S&P also said it assigned a preliminary B rating to its $340 million credit facility with preliminary 3 recovery rating, indicating 50% to 70% expected default recovery.

The facility consists of a $270 million term loan due 2021 and a $70 million revolving credit facility due 2019.

The company will use the proceeds to refinance its existing 7¾% $260 million subordinated notes due February 2015 and $60 million revolving credit facility due December 2015. The transaction will extend debt maturities and reduce interest expense, S&P said.

The CreditWatch listing reflects an expectation that Knowledge Universe will eliminate near-term maturities and will be able to maintain adequate liquidity following completion of the refinancing as proposed, said Hal Diamond, an S&P analyst.

In July 2013, the company withdrew a similar refinancing transaction, citing market conditions. Diamond said in a press release that he also expects that improving operating performance and lower pro forma interest expense will result in consistently positive discretionary cash flow.

The ratings also consider its weak business risk profile and management's focus on accreditation, which will help enhance center performance due to higher student retention and lower teacher turnover, Diamond added.

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