Moody's changes School Specialty outlook to negative

Moody's Investors Service said it affirmed the Caa1 (LGD4) rating assigned to School Specialty, Inc.'s $145 million senior secured term loan, which has been upsized from $125 million, and changed the loss-given-default rate on the loan to 63% from 64%.

The B3 corporate family rating and B3-PD probability of default rating were affirmed, and the outlook has been revised to negative.

Incremental proceeds from the upsized term loan are expected to fund a higher cash payment to the company's existing debtor-in-possession facilities.

The agency said the revised outlook reflects higher leverage of roughly 5.2 times (including Moody's standard adjustments) as a result of the incremental term loan without meaningful improvement to liquidity. In Moody's view, the use of proceeds to fund a higher cash payment to DIP lenders suggests that valuation expectations to monetize in a timely manner may have moderated.

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