Moody’s ups KinderCare facilities, rates second-lien

Moody's Investors Service said it changed Kuehg Corp.'s (KinderCare Education, LLC) outlook to stable from positive and affirmed its B3 corporate family rating and B3-PD probability of default rating following the announced dividend recapitalization transaction.

The agency also assigned a Caa2 rating to KinderCare Education's proposed $260 million second-lien term loan due 2025 and upgraded the ratings on its first-lien senior secured credit facilities, consisting of an amended and upsized $940 million ($932 million outstanding) term loan due 2022 and an $80 million revolving credit facility due 2020, to B1 from B2.

In a proposed transaction, the proceeds from KinderCare Education's new $260 million second-lien term loan and $50 million first-lien term loan add-on will be used to fund a shareholder distribution. This is the first time since the Partners Group acquired the company in August 2015 for roughly $1.5 billion that the company has taken on additional debt to fund a distribution.

Moody’s said the outlook change reflects the aggressive financial policies associated with this transaction, and the weakening of the company's pro forma credit metrics and cash flow characteristics. It reflects the agency’s view that it will take a longer time period compared to previous expectations for KinderCare Education's credit metrics to approach levels consistent with a higher rating.

The upgrade of first-lien term loan rating to B1 reflects the introduction of the second-lien debt to the company's capital structure, and the loss absorption provided by this instrument, Moody’s added.

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