S&P rates McGraw-Hill Education debt B-, CCC

S&P said it assigned B- issue and 3 recovery ratings to McGraw-Hill Education Inc.’s planned $1.15 billion term loan B and $1.15 billion of senior secured notes. The agency also gave CCC and 6 ratings to the company’s planned $875 million of senior unsecured notes.

Platinum Equity Advisors is acquiring the company from Apollo Global Management for $4.5 billion and will use the new debt to help it fund the deal. The company will also secure a $200 million undrawn asset-based lending revolver and $150 million undrawn cash flow revolver.

S&P also affirmed McGraw-Hill Education’s B- issuer rating. “We will withdraw the issuer and issue-level ratings on its borrowing subsidiaries at the close of the transaction.”

“We expect MHE to generate positive FOCF despite the sharp debt increase. Despite roughly $1 billion of additional debt pro forma for the transaction, we expect MHE to generate continued positive FOCF because of higher earnings and a modest decline in annual interest costs of about $30 million. We expect FOCF to debt of about 4%-5% over the next 12-18 months,” S&P said in a press release.

The outlook is stable.

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