Moody's lowers Scholastic view to negative

Moody's Investors Service said it changed Scholastic Corp.'s outlook to negative from stable after the company announced that it plans to use the proceeds of a new $200 million term loan to fund a $200 million share buyback.

The agency affirmed Scholastic's Ba1 corporate family rating, Ba1 probability of default rating and Ba2 senior unsecured note rating.

The agency said it was concerned about the $200 million share repurchase, which marks a change from the company's 10-plus-year policy of not paying dividends or buying back shares. The agency said that additional cash distributions to shareholders, along with its weak operating performance, could raise the company's leverage over time.

The ratings also consider the company's ability to generate cash from its leading global position as a children's book publisher, its multiple distribution channels and its strong brand portfolio, the agency said. On the other hand, the company has reported a weak operating margin and faces execution risk related to margin improvement plans.

The agency expects the company to keep its debt-to-EBITDA ratio below 3.3 times and its free cash flow to debt above 8% in the fiscal year ending May 2008.

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