Moody’s cuts First Student

Moody's Investors Service said it downgraded First Student Bidco Inc.’s ratings, including the corporate family rating to B1 from Ba3, the probability of default rating to B1-PD from Ba3-PD and First Student's senior secured bank credit facilities and guaranteed senior secured global notes to B1 from Ba3.

“The ratings downgrade reflects First Student's inability to deleverage since the July 2022 acquisition of Total Transportation. Moody's estimates First Student's adjusted debt/EBITDA, pro forma for recent acquisitions and the First Transit divestiture, to be around six times at Dec. 24, 2022. This leverage figure includes the benefit of a material amount of continued add-backs to EBITDA dating back to the depths of the Covid-19 pandemic that have declined meaningfully, albeit at a slower pace than Moody's expected.

“While the vast majority of First Student's business has recovered post-pandemic, these add-backs specifically address bus routes for existing customers that First Student has not been able to effectively service due to a lack of available labor, and increased recruiting, retention, relocation, and training costs for bus drivers. Moody's projects that First Student's adjusted debt/EBITDA will decline to around 5.5 times for the fiscal year ending June 29, 2024 and not reflect any benefits from the aforementioned add-backs,” Moody’s s said in a press release.

The outlook is stable.

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