S&P trims Learning Care, rates loans B-, CCC

S&P said it lowered its corporate credit rating on Learning Care Group (US) No. 2 Inc. to B- from B+. The outlook is stable.

At the same time, S&P said it assigned a B- issue-level rating on the company's proposed $75 million senior secured first-lien revolving credit facility due 2023 and $520 million senior secured first-lien term loan due 2025. The 3 recovery rating indicates an expectation for meaningful recovery (50%-70%; rounded estimate: 60%) of principal for lenders in the event of a payment default.

S&P also assigned a CCC issue-level rating and 6 recovery rating to the company's proposed $160 million senior secured second-lien term loan due 2026. The 6 recovery rating indicates an expectation for negligible recovery (0%-10%; rounded estimate: 0%) of principal for lenders in the event of a payment default.

“The downgrade reflects our estimate that Learning Care's large $636 million debt-financed dividend will cause pro forma lease-adjusted debt leverage (which includes our $300 million preferred perpetual equity debt adjustment) to jump above 7x at the transaction's closing from 4x as of Dec. 30, 2017, and reported free operating cash flow (FOCF) to debt to fall to less than 2%,” S&P said in a news release.

“We also expect that the company will use excess cash flow to invest in growth initiatives, rather than debt repayment, causing leverage to remain elevated in the high-6x area over next 12 months.”

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