Moody's rates School Specialty loans B1, notes B3, Caa2

Moody's Investors Service said it assigned first-time ratings to School Specialty Inc. The ratings are being assigned in connection with the proposed acquisition of School Specialty by Bain Capital and Thomas H. Lee for a transaction valued at about $1.8 billion.

More specifically, Moody's assigned a B2 corporate family rating, a rating of B1 to the $175 million senior secured revolver, $300 million senior secured term loan B and $250 million senior secured delayed-draw credit facility, a rating of B3 to the $350 million senior unsecured notes due 2013, a rating of Caa2 to the $300 million senior subordinated notes due 2015 and an SGL-3 speculative grade liquidity rating.

The outlook is stable.

Moody's said the ratings are supported by the company's significant market leadership position in a highly fragmented market, its strong mix of proprietary brands, and the depth of its product offerings which currently provide the company with a competitive advantage over larger and better capitalized mass market retailers.

The ratings are constrained, the agency said, by the initial amount of proposed funded leverage, the company's acquisitive business strategy, and in Moody's opinion its expected reliance on new product expansions to support sales. In addition, the ratings are restrained by the company's small scale, the potential for more competition from larger and better capitalized companies, high seasonality, and low tangible asset coverage; however, the ratings do reflect the stable industry segment in which the company operates.

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